Firms rejecting orders to avoid spending cash

UK BUSINESSES are turning down contracts worth almost £2.3 billion a year due to a reluctance to invest in new equipment, research has found.

Some 40 per cent of businesses surveyed said they rejected new orders as they don’t want to invest in facilities or plant in the current economic climate, according to Lombard, the asset finance division of Royal Bank of Scotland.

The bank said the UK now lags behind countries including Austria, Switzerland, Turkey and Mexico in the use of machine tools, a key indicator of manufacturing investment.

Alexander Baldock, managing director of Lombard, said: “The economy cannot afford for businesses to turn down orders. Firms are letting their machinery sit idle rather than committing to investment as they don’t want to use valuable cash.”

Lombard said that almost half of firms that did invest used cash from their balance sheet, adding that this was “one of the most inefficient ways it could be done”.

Baldock added: “There is a ready-made and highly flexible solution in asset finance, where the asset financier takes the risk on behalf of the company. This allows companies to get the very latest equipment they need without over-stretching.”

Surveys have found that firms around the globe are hoarding cash rather than spending it. A study by the Ernst & Young Item Club last year found that UK corporate financial surpluses equated to some 6.6 per cent of GDP, while non-financial companies in the US were holding highest level of cash on their balance sheets since 1963.