What is negative inventory and how is it useful?
In IC Setup / Options on the Processing tab, there is an option to 'Allow Negative Inventory Levels'. Selecting this option will enable the processing of transactions that result in the available quantity of stock items to go below zero.
The most common reason for turning on this feature is due to the timing of entering documents. For example, negative quantities can result when shipments and invoices are entered for items before entering their receipts. This allows the sale to go forward and be processed before the receiving entries are done. If this option is not selected, transactions that require more than the number of items available at the specified location cannot be posted. Available items are calculated by taking the number of items on hand less the number of items committed to get the number of items available. For example, if there are 10 items on hand, and 8 of them have been committed, a new order for 4 items cannot be shipped.
Once the option to allow negative inventory has been turned on, it is possible to turn it off at any time. However, it is important to ensure there are no negative values before turning it off. The system will not check for this when turning the function off, but any items which have negative values will generate various error messages during processing. For example, this message may be displayed when trying to do an IC Adjustment for an item with negative inventory - even though the adjustment is to increase the quantity:
Note that costing may be affected when negative inventory is in use. One of the biggest issues will be when there is zero quantity on hand, and therefore zero average cost. The system will then use the most recent cost for costing of items during transactions. However, if no MRC exists, then the cost will be recorded at zero.
The negative inventory function is incredibly useful, but must be used carefully and the user needs to be conscious of what the potential pitfalls may be.