Louise Southall on Late Payments and Optimism in the Small Business Sector

Louise Southall on Late Payments and Optimism in the Small Business Sector

Louise Southall, Economist and Small Business Specialist at Xero, highlighted key insights from the latest Xero Small Business Insights report, in her latest interview. The report indicates a challenging quarter for Canadian small businesses, particularly concerning late payments and the time taken to get paid. Average payment time increased to 29.4 days, with businesses being paid over a week late on average. While there was still a decline in small business sales (-3.8% year-over-year), this was an improvement from the previous quarter’s -4.3%, suggesting the decline may be leveling off. Louise emphasized the importance of localized data through the XSBI program to help policymakers and businesses understand regional economic dynamics and encouraged small businesses to focus on improving productivity, streamlining operations, and seeking professional advice to navigate current economic challenges.

Louise Southall is Xero’s Economist. Louise joined Xero in mid-2020 as part of the Xero Small Business Insights (XSBI) team. The XSBI program uses anonymized and aggregated data from the Xero platform to inform decision-makers about the latest trends in the small business economy in order to support small businesses.

She has almost 30 years of experience in economics and business advocacy working with multiple business organizations, councils, government agencies and charities. Her work has covered a broad range of economic and business-related policy issues, membership projects and thought-leadership research. She has a Masters of Economics from Macquarie University and a Bachelor of Economics (hons) from the University of Newcastle.

Louise, could you provide an overview of the latest findings from the Xero Small Business Insights report? What do these findings suggest about the current state of the Canadian small business economy?

The latest XSBI data for Canada revealed another disappointing quarter for Canadian small businesses, particularly in terms of late payments and average time to paid metrics, both of which showed regression in the December quarter after seeing improvement in previous quarters. The average time small businesses waited to be paid increased to 29.4 days, up from 29.0 in the previous quarter. On average, small businesses in Canada were also paid over a week late at 8.6 days.

In slightly more positive news, there were signs that the downward trend in sales growth that has been underway since mid-2021 may finally be starting to improve. Canadian small business sales growth was still lower than a year ago in the three months to December (-3.8% y/y), but this quarter showed improvement from the September quarter result (-4.3% y/y), an indication that the downward curve may be flattening.

Overall, Canadian small businesses continue to feel the strain of high-interest rates and reduced consumer spending, but this quarter’s results hint at the potential for improved outcomes in the future. Together with rising business owners’ optimism, the latest XSBI data paints a cautiously hopeful picture for small businesses for the second half of the year.

With the report highlighting a decline in small business sales in Canada, what are the key factors contributing to this trend and how it varies across different sectors?

For months, Canadian small businesses have been caught at the intersection of record-high interest rates and sluggish consumer spending. Following the Bank of Canada’s sixth consecutive interest rate hold since July 2023, small businesses will be eager to see a rate cut in future decisions, which could lead to an increase in consumer spending down the line.

While we don’t currently track industry-specific data for Canada, we can see in other countries where Xero is running its XSBI program, that it’s the industries that are most dependent on non-essential spending from households that are feeling the biggest pinch, such as hospitality. This reflects the impact of ongoing cost-of-living pressures which don’t leave households with much extra cash to spend with their local small businesses.

Image Courtesy: Xero

The XSBI program recently began providing province-specific updates. Could you explain why it’s important to have this localized data and how it can help businesses and policymakers better understand regional economic dynamics?

Having this data at the provincial level equips us with extra information about how these specific areas are performing. There is very little Canadian data available at the regional level that is specifically focused on small businesses, and most of this is survey-based rather than actual economic performance data. This new XSBI data means policymakers, small businesses and their advisors now have access to more localized data that we hope will result in opportunities for more informed, strategic decision-making.

According to the latest data, there are noticeable differences in economic performance among provinces. What might be causing these discrepancies, particularly the smaller sales decline in Alberta and faster payment times in British Columbia?

Indeed, the latest XSBI data showed fluctuation in small business performance from province to province. Albertan small businesses, though they did not see positive growth in the December quarter (sales growth was 3.0% lower y/y), beat the average for sales growth (-3.8% y/y), while both British Columbian and Ontarian small business growth was softer in comparison.

Differences in performances across provinces often reflect different economic structures. For example, Alberta’s oil industry is likely helping to support many small businesses in the province, given world oil prices, while currently lower than in 2022, are still higher than they were in the years prior to the pandemic. The more diversified economy of British Columbia means it is more likely to be growing at a pace closer to the Canadian average most of the time.

Given the ongoing economic fluctuations, what strategies would you recommend Canadian small businesses adopt to navigate these uncertain times effectively?

In uncertain economic times such as these, small businesses should look to double down on productivity and improve efficiencies where they can, whether that be through digital adoption and the use of AI tools to streamline automation efforts or finding ways to make it easier for customers to engage with the business.

Some of the active steps small business owners can take include encouraging prompt payments by having multiple payment options available and a “pay now” link on invoices, and encouraging loyal customers by using offers such as loyalty cards or weekly specials.

Remember that Canadian small businesses don’t need to tackle the current challenging conditions alone. We always encourage owners to get expert advice from an accountant and bookkeeper about their specific business needs.

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