Late payments for UK small businesses hit a 2-year high

Xero’s Small Business Index found that invoices are paid significantly later than they are in Australia (6.5 days) and New Zealand (6.2 days).

In September, small businesses waited an average of 30.6 days to be paid by their customers — an increase of 0.6 days compared with August. This represents the longest payment times for two years, putting growing pressure on cash flow and their ability to pay staff and rising bills.

Alex von Schirmeister, UK managing director at Xero, said the reversal of the tax measures announced in the last government’s mini-budget has left small businesses in limbo at a time when they need stability.

“It’s critical that they are paid on time so they can manage their cash flow and handle rising costs. We urge our new Government to ensure that hard-working owners of these small businesses are protected,” he said.

“We need to see tougher penalties for those big businesses flouting agreed payment terms, and policies implemented that require more transparency in regulation and reporting around late payments.”

Overall, the Xero Small Business Index fell to 87 points in September. This is the lowest reading of the UK index since February 2021, as small businesses continue to battle late payments and slow sales growth.

As living costs soar and consumers have less money to spend, sales growth slowed to the lowest in over a year, rising just 3.6 per cent year-on-year (y/y) in September — the smallest rise since February 2021.

The retail sector continues to be disproportionately impacted by these factors. Small retailers recorded their fourth consecutive monthly decline in sales (-7.4 per cent y/y), as consumers cut back on spending.

The number of people employed by small businesses fell by 4 per cent y/y — the sixth consecutive monthly decline. London’s small-business community was the only region with more jobs compared with September 2021, up by 3.4 per cent y/y.

The weak job market remains centred on industries that traditionally employ large numbers of people, including manufacturing (-8.2 per cent y/y) and construction (-7.4 per cent y/y). Despite the manufacturing sector recording the largest decline in jobs, it did have the largest wage gains (+5.9 per cent y/y), suggesting these businesses are having to offer more money to attract scarce skilled staff.