Canadian small business sales fall 4% in March quarter

Canadian small business sales fell 4.0% year on year in the March quarter, according to Xero, although March brought the first monthly sales increase in five months.

The figures suggest a weak start to the year after a decline at the end of the previous quarter, with both invoice payment times and late payments rising.

Xero's quarterly Small Business Insights report is based on aggregated, anonymised data from 12,000 Canadian small businesses using its platform. It tracks sales performance, late payments and the time businesses wait to be paid.

Sales were weakest at the start of the quarter. They fell 10.1% year on year in January and 2.9% in February before edging up 1.0% in March, the first positive monthly result since September.

Even with that improvement, March remained well below the series' long-term monthly average growth rate of 4.3%. Over the past three years, monthly sales growth has exceeded that average in only four months, underscoring the length of the sector's downturn.

Payment strain

Alongside weaker sales, cash flow conditions deteriorated. Small businesses waited an average of 29.8 days for invoices to be paid in the March quarter, up from 27.2 days in the previous quarter.

Late payments also increased, with the average time between a payment due date and receipt rising to 11.6 days from 10.5 days in the December quarter.

Louise Southall linked the sales slowdown to broader economic pressures.

"Poor sales results driven by ongoing macroeconomic tensions are continuing to impact the ability of small businesses to pay their bills and manage cash flow. While the modest rise in March sales is welcome, it remains well below long-term averages, and we've seen only four months of above-average growth in the past three years," said Louise Southall, Economist at Xero. "The recent spike in gasoline prices is a fresh headwind that could weigh on both costs and sales in the months ahead, as small businesses navigate the long-term impacts of fuel costs and small business customers have less to spend on non-fuel purchases."

The findings add to concerns about the wider Canadian economy, with small businesses accounting for nearly half of private sector GDP. Higher fuel costs could squeeze operators through transport and other operating expenses while also limiting consumer spending.

Regional split

All three provinces tracked in the report posted year-on-year sales declines in the quarter, although the scale of the weakness varied.

Alberta was the strongest, with sales down 2.6% in the quarter. It was supported by growth in two months, with sales rising 1.5% in February and 2.5% in March.

Ontario recorded a 4.7% quarterly fall. March brought some relief, with sales rising 3.3% after four consecutive months of decline.

British Columbia posted the steepest quarterly drop, with sales down 4.8%. Sales fell in all three months of the quarter, although the 0.8% decline in March was the smallest in a six-month stretch of contraction.

On payment times, British Columbia was fastest in the March quarter at 26.5 days, 2.6 days quicker than in the previous quarter. Alberta businesses waited 26.9 days to be paid, while Ontario had the longest delay at 30.7 days. Payment times slowed in both Alberta and Ontario from the prior quarter.

Ashalee Mohamed said small businesses were under pressure from both rising costs and weaker consumer demand.

"Small business owners across Canada have already navigated a prolonged stretch of tough trading conditions, and they now face a new set of challenges with the recent jump in fuel prices," said Ashalee Mohamed, Country Manager for Canada at Xero. "Rising costs are hitting bottom lines at the same time as customers have less disposable income to spend. It's a difficult combination, especially when cash flow is already under pressure from longer payment times. During periods of uncertainty that are largely outside their control, the best thing small business owners can do is focus on what they can influence: managing cash flow closely, encouraging prompt payment, and continuing to deliver great service to their customers."