US small firms see sales slow but invoice payments rise

Xero reported that US small business sales growth slowed to a two-year low in the December quarter of 2025, even as equity markets rose and headline economic indicators remained firm. Separate invoicing data showed faster payment times throughout the year, offering some relief for cash flow.

The figures come from Xero Small Business Insights, which tracks aggregated, anonymised data from about 32,000 of the company's small business subscribers in the US. The dataset spans eight years, from January 2017 to December 2025, and measures sales growth and how long businesses wait for invoices to be paid.

The results suggest a widening gap between financial-market performance and conditions facing many smaller firms. Xero compared its sales series with broader 2025 benchmarks, including a roughly 17% rise in the S&P 500 and average nominal GDP growth of 5.1%.

Across 2025, small business sales growth averaged 2.4% year on year, compared with the series' long-term average of 5.5%.

Sales momentum

Sales growth improved through the first three quarters of 2025. It rose 1.9% year on year in the March quarter, increased to 2.9% in the June quarter, and strengthened to 4.1% in the September quarter. Within that period, Xero highlighted a 7.1% year-on-year rise in September.

Momentum then weakened sharply in the final three months of the year. Sales growth in the December quarter was 0.9% year on year, the slowest pace since late 2023.

Xero linked the late-year slowdown to a mix of factors, including the lagged effects of tariff measures. It also noted that the Federal Reserve cut rates in October and December.

"The December quarter showcased just how quickly conditions can shift," said Louise Southall, economist at Xero. "While interest rate cuts can support confidence, the delayed impact of tariffs was still working its way through the system. For many small businesses, those pressures can dampen demand and slow momentum, even when broader Wall Street indicators appear strong."

Payment trends

Against the softer sales backdrop, payment performance improved steadily through 2025. The figures tracked two measures: the number of days invoices were overdue and the total time taken for invoices to be paid after they were issued.

Late payments were shortened in every quarter. The average fell from 9.3 days late in the March quarter to 7.8 days late in the December quarter.

The December-quarter result was the shortest in four years and one day below the long-term average of 8.8 days.

The average time to be paid declined more gradually, from 29.2 days in the March quarter to 27.9 days in the December quarter.

This was the shortest time to be paid since December 2021 and one day below the long-term average of 28.9 days.

Together, slower sales growth and faster payments point to a mixed operating picture. Revenue growth weakened late in the year, while working-capital pressures eased as customers paid more quickly and fewer bills fell overdue.

Policy uncertainty

Looking to 2026, Xero flagged uncertainty as a central risk for smaller businesses. Frequent shifts in economic policy, such as rate adjustments and changes to tariff settings, can create unpredictability for pricing, costs and customer behaviour.

These changes can be hard to manage because they affect different parts of a business at different times. Lower interest rates may reduce financing costs and influence sentiment, while tariffs can add input costs or shift demand as their effects move through supply chains.

"Xero's data shows two trends moving in different directions," said Andrew Kanzer, Xero's managing director of North America. "Payment performance improved steadily across the year, which supports cash flow and financial stability. However, sales growth softened later in the year, underscoring how exposed small businesses are to shifts in economic policy and cost structures. Until demand growth becomes more durable and policy direction more predictable, disciplined cash flow and cost management will remain essential for small businesses navigating an uncertain environment."

Xero will continue publishing updates through its Xero Small Business Insights programme as 2026 progresses.