You can’t always be proactive about errors, not even with an inventory app in place. Negative inventory is a relatively widespread problem even for those using automated inventory software. In this blog post, we’ll dive into the problem of stock levels falling below zero, what it can lead to, and how to fix this in your inventory system.
What is negative inventory?
Negative inventory is a situation where the recorded inventory levels indicate a quantity less than zero. This discrepancy means that the records show more items have been sold or used than were available in stock.
How bad is negative inventory after all?
Negative inventory can have several significant consequences for a small business. Here are five potential impacts:
- Inaccurate financial statement. Negative inventory can lead to inaccurate financial statements, as it distorts the cost of goods sold (COGS) and inventory balances.
- Customer dissatisfaction. Inventory discrepancies often mean that products that appear to be in stock are actually unavailable. This can lead to delays in fulfilling customer orders, cancellations, and ultimately, customer dissatisfaction.
- Cash flow problems. Negative inventory can indicate overstocking of other items or mismanagement of stock, tying up funds that could be better used elsewhere in the business.
- Operational inefficiencies. Negative inventory reflects problems in the inventory management system, such as errors in tracking or recording stock levels. These inefficiencies can increase operational costs, as employees may spend excessive time correcting inventory records, locating missing items, or handling customer complaints about unavailable products.
If dismissed, negative inventory could mount to either of these worst-case scenarios over time. That said, it could be less ominous if you know how to unravel the problem and fix it on the spot.
Where does the negative stock situation come from?
Negative inventory is a sign that things went wrong at some point and can get more wrong down the road. Here are some of the reasons why your stock can go negative:
- Transferring inventory to/from the wrong warehouse. This is bound to mess up inventory levels, resulting in misleading quantities and occasionally negative inventory records at one of the locations.
- Selling or producing more than is available. If a software user reserves more inventory for upcoming sales or production than there is in stock in reality, whether by mistake or knowingly, the company is likely to end up with negative inventory sooner or later.
- Inventory adjustments that are unaccounted for. Fixing errors through inventory adjustments is the quickest yet least reliable way in terms of accuracy. While making an inventory adjustment make sure to fill out the memo field with the reason for changing items’ quantity on hand. Otherwise, it’s hard to retrace the steps and determine where negative numbers came from.
- Inventory shrinkage identified during an inventory count. If inventory loss is discovered on time this is a lucky development of events. However, it also calls for further investigation.
- Inventory errors in QuickBooks Online carried into inventory software. If a user doesn’t stick to one software for inventory data entry and revision this might cause occasional data conflicts, including negative inventory.
- Timing issues. Sales are recorded before the purchase orders are received and processed. It wouldn’t be a rare occurrence either if an inventory count was in progress but sales were still going through - this is a surefire way to mess up your inventory numbers.
- Returns and Refunds. Incorrectly processed returns and refunds can distort inventory levels.
How to determine the root cause of stock going into a negative quantity?
Whatever the reason, HandiFox Online makes it easy to get to the bottom of this issue. Go to Item List, enter the name of an item with a negative quantity in the search field, or click on the Total QOH column to get all items sorted from lowest to highest quantity.
In the Actions column, click on the down arrow next to Edit and choose Transactions in the drop-down menu. This will take you to the Inventory Transactions by Item report.
Select the Site, specify the Date Range, and click Apply. The software will generate a list of transactions for the specified item, date range, and storage locations. Your inventory managers can take it from here by clicking on transaction numbers and examining related transactions.
You can run the same report by going to Reports->Inventory Transactions by Item.
Practical tips for preventing negative stock in the future
Negative inventory could be pretty persistent. Of course, you’re better off using some automated inventory control software but, as said before, it can’t eliminate the human factor. Stick to these simple practices so you don’t have to repeatedly get your stock back to positive:
- Use a centralized system to manage inventory across multiple locations to avoid discrepancies and stock imbalances.
- Implement barcode scanning for all inventory movements to reduce manual errors and ensure accurate data entry.
- Use cycle counting to regularly check a subset of inventory instead of doing a full inventory count periodically
- Define minimum stock levels for each item and set automated reorder points to trigger restocking before stock levels get too low.
- Minimize using shortcuts like auto-fill features and maximize the usage of barcode scanning. It will increase the accuracy by reducing the chance of an entry error
- Stick to your inventory control app for inventory entries and adjustments. If you start making changes to quantities on hand in the accounting software, there’s bound to be a conflict.
- Provide mobile access to inventory management systems for on-the-go updates and monitoring.
Use the fail-proof mechanisms of your stock management app, such as negative inventory warnings, or simply don’t allow the stock to fall below zero altogether.
How does HandiFox Online help avoid negative inventory?
HandiFox Online has a setting that can stop inventory from getting into a negative quantity. To turn it on, go to Users Settings (
)->Settings->Inventory->Don't allow negative QOH values
With this setting enabled, a user is warned and safeguarded against saving transactions with a negative inventory.
Negative inventory is less intimidating if you know how to investigate it and, what’s even better, prevent it. HandiFox gives you a live look at and full control of your inventory- take a free 14-day trial now.
