UK’s small firms facing late payments cliff edge as inflation takes hold
Xero’s Small Business Index is at its lowest point since February 2021
London – 26 May, 2022 – Tougher economic conditions caused by rising inflation has left the UK’s small businesses squeezed tighter between soaring energy bills and wages on one side, and slower consumer spending power and late payments, according to the latest data from Xero, the global small business platform.
Xero's Small Business Index, based on anonymised and aggregated data from hundreds of thousands of small businesses, fell 11 points to 83 in April. This is the lowest reading since February 2021 and the most dramatic monthly fall in the Index since the initial impact of the pandemic in April 2020.
Late payments hurting small businesses
Small businesses had to wait an average of 29.9 days to be paid in April. There was also a similar-sized rise in late payment times, up 1.8 days to 7.7 days. This is the longest small businesses have had to wait to be paid since September 2020.
In terms of sales, the nationwide figures paint a grim picture, with growth slowing to 6.3 percent year-on-year (y/y), after 13 months of double-digit growth. Rising cost of living across the board is likely to be influencing this result, with the industry-level sales data also indicating that households started to switch away from discretionary spending-based businesses in April.
Retail was the sector hit hardest by this, with sales down 4.8 percent y/y. A similar trend was observed in the Office for National Statistics (ONS) retail sales figures for April, despite strong performances in food store sales. Meanwhile, Xero’s Small Business Index data showed that construction sales slowed to just 3 percent y/y growth and manufacturing saw just 6.4 percent y/y growth in April.
The only metric to improve in April was wages, which rose 4.5 percent y/y after a 4.1 percent y/y rise in March. This pace of growth is the fastest since the Index series began in January 2017. This trend was also reflected globally, with Australian small businesses seeing a new record growth figure (4.1% y/y), while small businesses in New Zealand also saw fast growth (4.8% y/y).
However, despite the record rise in wages in April, the purchasing power of households is diminishing. Using the main Consumer Price Index (CPIH) as a proxy for prices, the 7.8 percent y/y rise in April suggests that real wages in the UK actually fell by 3.3 percent y/y in April. This is negatively impacting small business sales as consumers have less disposable income to spend on their products and services.
Alex von Schirmeister, Managing Director UK & EMEA at Xero, said: “This is a warning sign of what’s to come. Small firms are being hammered by a slowdown in consumer spending and a slowdown in getting paid what they are owed. Late payments should be referred to as ‘unapproved debt’. Small businesses are pushed to the cliff edge by large firms who hold on to their suppliers’ money. Even a single unpaid invoice can set off a chain reaction that leads to delays, instability, and dire consequences across entire supply chains.
“With a recession looming, the government must provide appropriate incentives for large businesses to pay their suppliers on time, and stricter penalties when it comes to paying late.”
Many small businesses also continued to navigate a difficult jobs market, a trend highlighted in March’s Index results. In April, jobs fell 3.2 percent (y/y, with almost all sectors recording a fall in jobs. The exception was hospitality where jobs were up 13.7 percent (y/y), but there are still 27.7 percent fewer people working in small restaurants, bars and hotels than before the pandemic. Across the UK, London (+1.4% y/y) and Scotland (+0.8% y/y) were the only two regions to see more people working in small businesses today than a year ago.
Robyn Greenacre | Robyn.Greenacre@xero.com | 07976005232
Notes to editors
Last year, Xero announced the formation of a prompt payment task force of leading experts, brought together to find new solutions to the late payment crisis which has had a stranglehold on small firms for decades. The task force - in association with The Entrepreneur’s Network – also came up with practical recommendations to take to government and key stakeholders. Experts included former Xero UK & EMEA Managing Director Gary Turner, Dr Veronika Koller, behavioural scientist Dr Alexandra Dobra-Kiel, accountant Kara Curtayne, psychologist Dr Audrey Tang, business journalist Simon Read, and owner of Small Business World Zing Pritesh Mody. You can read these recommendations here.
Xero is a global small business platform with 3.3 million subscribers which includes a core accounting solution, payroll, workforce management, expenses and projects. Xero also provides access to financial services, and an ecosystem of more than 1,000 connected apps and more than 300 connections to banks and other financial institutions. Through Xero’s open platform, small businesses can connect to a range of solutions that help them run their business and manage their finances. For three consecutive years (2020-2022) Xero was included in the Bloomberg Gender-Equality Index. In 2021, Xero was included in the Dow Jones Sustainability Index (DJSI), powered by the S&P Global Corporate Sustainability Assessment. Xero has been named as a FIFA Women’s Football partner under FIFA’s new commercial structure.
About Xero Small Business Insights
The aim of Xero Small Business Insights is to create insights to help inform decision makers in support of the small business economy as a whole. Accenture worked in collaboration with Xero on the design and methodology of the Index prior to February 2022. The principal source of small business insights in this report is customer data from Xero - a small business platform that supports online accounting and a range of other applications. Xero are responsible custodians of our customers' sensitive data and do not release any data that could identify individual businesses. The data used is aggregated and anonymised to ensure the privacy of Xero subscribers, and their counterparts.
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