US and Canada small businesses’ sales are growing but inflation remains a major concern

Xero, which launched its Small Business Insights for the United States and Canada, revealed in its report that sales of small firms are growing and their invoices are also being paid quicker than the average historical trend, but high inflation is playing spoilsport. SMEs should evaluate how the current unpredictable business climate will affect their working capital as well as consider fostering relationships with their clients to keep getting their invoices paid on time.

The US-China trade dispute already had an impact on small businesses' sales in the US and Canada, and the pandemic made matters worse. As they learned to survive, they are encountered another issue: sky-high inflation.

Factors such as high oil prices, disrupted supply chains, and workforce shortages have caused inflation to spiral to the highest level not seen in four decades. This has made it harder for them to sustain ‘real’ sales growth, which factors in inflation.

Small businesses account for 99% of all businesses operating in both countries and are responsible for significant job creation every year.

In March 2022, the US SMEs sales growth was 11.3%, but real sales growth was just 2.8% after accounting for an inflation rate of 8.5%.

In Canada, small businesses recorded sales growth of 5%, but after accounting for inflation of 7.7%, they recorded negative real sales growth of -1.7%.

The good thing is that they have seen their invoices being paid quicker than the average. USA SMEs saw their invoices being paid in 23.5 days while Canadian SMEs were paid in 27.5 days, which is below the average of 27 days for the US and 31 days for Canada.

This also helped to reduce the number of days an invoice is paid late. In the US, invoices were paid late by 5.6 days and 6.6 days in Canada, which is again below the average of 8-9 days.

By looking at the chart above, one can infer that SME cash flows may be in good shape as their invoices are virtually always paid on time. However, as interest rates continue to rise to cool down inflation, SME customers may be faced with the decision of whether to pay their invoices on time or delay them to save cash for unforeseen circumstances.

The most crucial factor for small businesses’ ability to thrive and maintain employment is working capital. But it all depends on their clients making fast payments. Therefore, it's a good idea to foster ties with your existing customers, which includes assisting your finance team in forging bonds with their business partners.

When dealing with new customers, small business owners should think about invoicing and payment terms at the very beginning of the contract and take actions action to reduce late payment volumes by invoicing correctly and on time and adhering to any specific requirements their customers may have.

Get more tips on effective cash flow management from our book, Let The Cash Flow. To find out more about how RIABU helps small businesses get paid on time, visit RIABU.com