New Small Business jobs being held back by late payments

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small business jobs being held back by late payment

An improvement in Small Business jobs and sales growth across UK small businesses in June has been largely offset by increasing late payments and a slowdown in wages growth, according to the latest data from global small business platform Xero.

Xero’s Small Business Index, based on anonymised and aggregated data from hundreds of thousands of small businesses, rose three points across May and June, recovering slightly after falling by 11 points in April.

After 14 months of year-on-year (y/y) decline, small businesses finally saw tentative jobs growth in June, increasing by 1.1 percent compared to last year. It marks a welcome boost to the number of people employed by small businesses.

Across the last three months, the strongest average monthly jobs growth was seen in the information, media and telecommunications sector (+4.2 percent y/y), while hospitality (-5.1 percent y/y) and retail (-3.9 percent y/y) businesses continued to struggle. In line with previous trends, Small Businesses in London led the way with jobs growth (averaging +1.7 percent y/y in the three months to June).

This tight labour market has continued to push up wages for small businesses, however, the rate of growth has slowed slightly. In June, wages rose 3.6 percent y/y , the smallest y/y rise since December 2021.

Modest sales growth in June but overall trend is still soft 

Sales revenue rose 7.6 percent y/y in June, but this came after rises of just 1.8 percent y/y in April and 0.4 percent y/y in May – leaving the average for the June quarter at just 3.3 percent. Sales growth also remains far below the average throughout 2022 (15.2 percent y/y).

As inflation remains high, selling goods and services is an uphill battle for small business owners. Using the June quarter CPI as a proxy for prices, sales volumes actually fell an average of 4.4 percent y/y  in the three months to June.

Alex von Schirmeister, EMEA Managing Director, Xero, said: “We hope that the June results mark the start of a sustained growth in small business employment. But the very weak sales growth for April and May show that business owners are struggling. It’s a reminder to us all about the importance of supporting local small businesses.”

He continued “The combination of inflation, rising costs and squeezed consumer spending makes for a very challenging environment, and it’s unacceptable that payment times to small businesses have continued to grow.”

Small Business Late payments continue to grow

Payment times to UK small businesses by their suppliers have continued to creep up in recent months. In June, the average time to receive payment stretched to 29.9 days, up from 29.2 days on average in 2022.

Perhaps more concerning is how late these payments were. On average, small businesses were paid 7.9 days later than the agreed payment terms in June 2023, and significantly higher than the average of 6.4 days observed throughout 2022.

“It’s heartbreaking to see late payments continuing to impact small businesses. We’ve been calling for greater action and hope to see some positive policy changes following the UK government’s prompt payments consultation due out any day now,” continued von Schirmeister.

Small Business Late payment is a widespread problem

Thousands of small business communities have been hit by late payments. It is not just limited to Uk customers paying late. International Debt Collection services have reported rises in enquiries as foreign customers delay on payments or not even pay at all.

The impact of these delays and defaults can be far-reaching. As well as creating cashflow issues, late payments can increase the risk of insolvencies, reduce investment in growth strategies, or prevent companies from taking on staff or buying new equipment.

These detrimental effects are being felt across every part of society with increased disruption to small businesses leading to job losses, lost tax revenue and a decrease in  purchasing power.

Fortunately, there is help available. By seeking professional advice and support from a specialist debt collection agency, businesses can take the necessary steps to get their payments back on track. These services can provide assistance with every aspect of credit management from chasing overdue invoices to recovering funds through litigation if necessary.

These organisations are particularly effective in helping businesses reclaim debts from customers

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