Xero, the global small business platform, released on Thursday its quarterly Xero Small Business Insights (XSBI) report, a snapshot of the health of the Canadian small business sector based on actual aggregated and anonymized data from 12,000 Canadian small businesses using Xero, including sales performance, late payments, and time-to-be-paid.
The report revealed that Canadian small business sales remained in sharp decline through the first two months of 2026, but returned to positive growth in March, for the first time since September 2025. While March sales growth offered a rare bright spot, longer payment wait times and higher late payments suggest continued cash flow pressures facing the Canadian small business sector, said Xero.
Sales declines deepen, with an unexpected March rebound
In the quarter to March 2026, Canadian small business sales fell 4.0% year-over-year (y/y), a larger decline than the 1.8% y/y drop in the December quarter (revised up from -4.1% y/y). After dropping 2% in December, small business sales growth tumbled further in early 2026, dropping 10.1% y/y in January, followed by a 2.9% y/y decline in February, said the report.
Xero said a rare bright spot came in March, when sales rose 1.0% y/y, the first positive monthly result in five months. However, this remains well below the series’ historical monthly average of 4.3%. In fact, over the past three years, monthly sales growth has only exceeded the historical average in four months, a reflection of the prolonged period of economic turbulence and macroeconomic uncertainty, and its continued impact on Canadian small businesses.
“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.”
Cash flow pressures build as payment times lengthen
Reflecting consumers’ contracting budgets, small businesses were paid increasingly late in the quarter, reversing a recent period where payment times and late payments had been quicker than historical averages. Small businesses waited, on average, 29.8 days for their invoices to be paid in the March quarter, up from 27.2 days in the December quarter. Late payments, the time between a payment due date and when payment was actually received, rose to 11.6 days, up from 10.5 days the previous quarter.
“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.”
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