New data from cloud accounting platform Xero Limited indicates a significant cooling in sales momentum for small businesses across North America as 2025 drew to a close. The company's Small Business Insights report, released Thursday, reveals a stark divergence between slowing revenue growth and improving payment behaviors, painting a complex picture of the sector's health.
U.S. Growth Nears Standstill
According to the report, year-over-year sales growth for U.S. small businesses slowed sharply to just 0.9% for the October through December quarter. This marks the weakest performance since late 2023 and a dramatic deceleration from the 4.1% growth recorded in the July-September period. The slowdown occurred despite interest rate cuts by the Federal Reserve in both October and December. Xero economist Louise Southall noted, "The December quarter showcased just how quickly conditions can shift." The company attributed the pullback primarily to the effects of tariffs and ongoing policy uncertainty, which have created headwinds for smaller enterprises.
Canadian Sales Slide to Pandemic-Era Lows
The situation appeared more pronounced in Canada, where the data turned negative. Sales growth fell 4.1% year-over-year in the fourth quarter, representing the sharpest quarterly decline since 2020. The contraction was not uniform across provinces. British Columbia experienced a severe 8.2% slump, while Alberta fared relatively better. Ashalee Mohamed, Xero's Canadian go-to-market lead, described the environment as "irregular and unpredictable" for business owners trying to plan, with Southall adding that small firms are "feeling the real impact of a fractured global economy."
A Silver Lining in Payment Times
In a contrasting trend, the data showed notable improvement in the time it takes for small businesses to get paid. Late payments dropped to an average of 7.8 days in the December quarter, down significantly from 9.3 days in March. The broader metric of "time to be paid" also decreased, settling at 27.9 days. "Xero's data shows two trends moving in different directions," observed Andrew Kanzer, Xero's managing director for North America. However, analysts caution that if demand continues to weaken, these gains in payment velocity could quickly reverse, putting renewed cash flow pressure on the smallest operators.
Market and Economic Context
The softening in small business activity stands in contrast to broader market indicators. Xero noted that its U.S. series pegged full-year 2025 sales growth at 2.4%—roughly half the typical long-term pace. This slowdown occurred even as the S&P 500 index climbed approximately 17% and nominal GDP growth averaged 5.1% for the year. The disconnect highlights how macroeconomic aggregates can mask underlying stress in the small business sector, which is often more sensitive to supply-chain disruptions, credit conditions, and regulatory changes.
Investor Reaction and Company Outlook
Investors reacted positively to the data release, focusing perhaps on the improved payment metrics or broader market movements. Xero's shares (XRO) on the Australian Securities Exchange finished Thursday's session up 4.26% at A$83.89, building on a 2.03% gain from the previous day. The Wellington-based company, which provides a cloud platform combining accounting, payroll, and payments for small businesses, competes in a crowded market against rivals like Intuit's QuickBooks and Sage.
It is important to note that Xero's insights are derived from anonymized, aggregated data from its own customer base, which may not always align perfectly with wider economic surveys due to sectoral and regional variations within its client mix. The company is scheduled to release its full-year results for the period ending March 31 on May 14. Investors will scrutinize that update closely for signs that the customer activity slowdown noted in late 2025 is affecting Xero's own financial performance.
