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12:00 AM 1st August 2024
business

Small Businesses Suffer Longest Late Payments Times Since Pandemic



Image by Jerzy Górecki from Pixabay
Image by Jerzy Górecki from Pixabay
Late payments to UK small businesses surged over the last three months, with payments delayed by more than a week on average, according to the latest Xero Small Business Insights (XSBI) data from Xero, the global small business platform.

Payments to small businesses were made 7.3 days late, on average, between April and June. This is an increase of 1.8 days compared to the March quarter, and represents the largest quarterly increase for four years, when pandemic uncertainty prompted a short-term spike. The largest increases in late payments were seen in two industries that are typically paid the fastest: retail trade (+3.1 days to 5.5 days) and hospitality (+3.0 days to 4.4 days).

Small businesses also waited an average of 29.1 days to be paid over the last three months, 1.2 days longer than the previous quarter.

Election impacts small business sentiment

Xero’s data revealed sales volatility between April and June, rising +8.9% y/y (year-on-year) in April due to Easter non-trading days largely falling in March this year. However, sales were more muted in May, with only a 1.3% y/y increase, before falling 5.2% y/y in June. With inflation rising by 2.8% in the year to June 2024, small businesses are still selling fewer goods and services than they did a year ago, forcing them to navigate tricky and uncertain economic conditions.

The sales downturn in June can, in part, be attributed to the impact of inactivity prompted by the UK General Election, during which small business customers likely put off significant purchasing decisions until the result was known. Broader quarterly sales results were more promising, driven by gains in education (+5.9% y/y) and healthcare (+4.9% y/y), sales for small retailers continued to fall (-3.3% y/y). This marks the industry’s second consecutive quarterly decline, while hospitality sales also fell by -0.6% y/y, influenced by unfavourable early summer weather conditions.

Sales performance across UK regions was varied, with strong quarterly results observed in the North East (+5.4% y/y), Yorkshire and the Humber (+3.7% y/y), and Scotland (+3.1% y/y). In contrast, small business in Wales saw sales fall by 0.4% y/y, plummeting by 9.3% y/y in June.

Kate Hayward, UK Country Manager at Xero, said:
“To wait over a week for payment owed is an unacceptable and unsustainable financial model for small businesses. Our latest data once again highlights the challenging economic environment that small businesses nationwide are facing, without having to chase down ‘unapproved debt’ being hoarded by customers, placing immense strain on both cash flow and business owners’ livelihoods.

“As our data has shown, small businesses are being held at the mercy of late paying customers. Labour pledged a robust stance on late payments in their manifesto, and we urge them to swiftly convert their commitments into action through introducing legislation as part of the Draft Audit Committee Bill.”


Decline in jobs growth

Jobs growth, which has been steadily strengthening since mid-2023, slowed to 1.0% y/y in the last three months, down from 1.5% y/y in the March quarter.

Admin services experienced the sharpest decline, with employment contracting by 6.3% y/y, while healthcare saw the largest increase in jobs (+4.5% y/y), followed by information media and telecommunications (+3.9% y/y), manufacturing and construction (both +2.5% y/y).

Job outcomes also varied across regions in the June quarter. Small business employment declined in the West Midlands (-2.6% y/y) and Yorkshire and the Humber (-0.4% y/y). In contrast, the North East led jobs growth at +5.3% y/y, followed by the East Midlands (+4.1% y/y) and Wales (+2.6% y/y).

Following tentative signs of improvement in the previous quarter, Xero’s UK Small Business Index, part of XSBI, averaged 83 points this quarter, a drop of 12 points compared to the last set of data. The fall in the Index was due to a decline in performance in all four metrics (sales, jobs, wages, time to be paid) that make up this measure.

Graeme Tennick
Graeme Tennick
"The UK generally feels a little tired at the minute; regardless of industry, and we are commonly seeing this when chatting to fellow business owners and even experienced this ourselves at the back end of May.

I am super proud to see the positive strides of businesses in North East that are bucking this trend whereby we have saw the following with our clients:

Recruitment ramping up across pretty much all of our larger clients and even a number of smaller clients are considering expansion
Trade clients starting to see an upturn in order books as we approach the Summer
We have seen more new clients join us in the past 6 months than we have in any period since covid
Investment and support into the region such as through NBSL that is aimed at helping businesses grow
We've got 7 clients currently going through the due diligence stage as they approach sales to larger entities on terms they are all comfortable with, thus none are distressed sales
We have a number of clients heading for record turnover and profits this calendar year

If you were ask why is this the case in the North East, I would say this is largely down to a very cautious but structured approach that has been adopted during the turmoil that has had to be endured during and post covid and I'm very optimistic about future months. Other professional bodies such as the Entrepreneurs Forum; that we are part of, are saying the same, as the statistics support this feeling among fellow business owners.
Graeme Tennick, founder and Chief Impact Officer at Newcastle-based Tennick Accountants