Time to get paid has increased again for small businesses

The index rose 0.6 days to 23.8 days, the longest time since September 2020.

Late payments also rose 1.2 days to 7.7 days — the highest since July 2020.

“We will be closely monitoring the time to be paid metric over the coming months for signs of emerging cash flow stress among small businesses,” said Will Buckley, country manager, Xero Australia.

“At a time when small businesses are facing numerous economic headwinds, it is crucial for bigger businesses to be paying their invoices on time. If any small business is starting to feel a cash flow squeeze, I encourage them to speak to their adviser and establish a plan for the coming months.”

The report also showed that the index was down 26 points in January 2023, driven by a slowdown across all four sub-metrics. Sales grew 7.2 per cent year-on-year (y/y), the same result as December but down from 11.1 per cent y/y in November. Jobs growth slowed to just 1.6 per cent y/y, down from 2.8 per cent y/y in December and wages rose just 2.9 per cent y/y in January, down from a peak of 4.7 per cent y/y in September 2022 and just below the long-run average for this series (+3.0 per cent y/y).

“This latest data shows that Australian small businesses are beginning to feel the impact of cost of living pressures on their customers,” Mr Buckley said.

“We are seeing a slowdown in sales that will be putting pressure on small businesses who are recovering from a demanding few years. This then flows through to their capacity to increase wages and attract staff.” 

The smallest wage rises were in healthcare (+2.2 per cent y/y), followed by rental, hiring, and real estate (+2.4 per cent y/y). The hospitality sector was the only industry to record wages growth above 4 per cent (+4.2 per cent y/y).

“Given Australia’s current low unemployment rate, there has understandably been a lot of concern around how this will impact wages growth and, in turn, inflation. However, our data suggests that the wage increases being paid by small businesses are not as large as they were as recently as September last year,” said Louise Southall, Xero economist. 

“While this may provide some short-term relief for small business owners who struggled with balancing above average wage increases and rising costs during 2022, it may result in consumers having less disposable income to feed back into small businesses in the medium term.” 

Across the industries, sales growth was led by arts and recreation (+17.1 per cent) and hospitality (+15.7 per cent). The weakest two industries in January were rental, hiring, and real estate (-2.5 per cent y/y) and retail sales (+0.6 per cent y/y).

Jobs rose 1.6 per cent y/y in January, the smallest rise since May 2022 and around half of the long-term average for this series. 

Education recorded the largest fall in jobs, with a decrease of 4 per cent y/y. Construction also now has fewer jobs than a year ago (-0.3 per cent y/y) — the first decline for the industry since May 2022.