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Overstock Inventory Can Create Financial Chaos

4 years ago
Rita K

Overstock inventory can cause financial problems because of inventory write-downs

Overstock Inventory can also take valuable warehouse space and tie up cash that ought to be used to purchase new inventory.  But, selling it in liquidation mode can cause its own set of problems, such as tarnishing your reputation and cannibalizing sales of other current products. The first challenge is to know, accurately and in real time, when inventory becomes obsolete.  By establishing clear parameters for obsolescence, and operating with a superior warehouse management software system (WMS), you can know when you have a problem early in the game – when it’s still possible to minimize your losses and liquidate the inventory before it goes out of style, gets stale-dated, or whatever the obsolescence challenge is with your particular inventory. The tax write-off you get for writing off the loss on obsolete inventory can help offset the inability to sell it for full value.    Again, the key to finding a buyer for your bulk obsolete inventory is to be able to provide accurate records to the buyer, including date of purchase, original purchase cost, accurate count by size and style, etc. With this information, generated by your WMS, you can investigate an inventory liquidation marketplace.  A simple Google search for this term yields a host of inventory liquidation companies.  They don’t pay much, but they do free up some cash, give you the opportunity to seek some tax advantage and free up significant amounts of valuable warehouse space. Alternatively, if you have an alternate web site, you can sometimes create your own marketplace and offer the inventory at significant discounts.  You can also explore creating marketplaces on Amazon and eBay. Liquidation.com is one example of a business-to-business liquidator.  You might be surprised how much you can recover from what is otherwise valuless inventory, taking up warehouse space and holding (at least some) amount of capital for ransom. You can also consider donating the inventory to charity.  Not to be repetitive, but the more accurate your WMS records are, the more likely the tax value of your charitable donation will withstand IRS audit. Some of the liquidation companies offer to sell your goods on their marketplace and remit the sales amount less their commissions. Others will give you cash for your excess inventory and sell it themselves.  Obviously, the more up-front cash you get, the less total money you are likely to receive.

Overstocked Inventory

 As noted above, setting up your own marketplace on Amazon or eBay might be a much better option, because you can control the amount of inventory available and establish pricing, which can be changed in response to consumer demand (or lack thereof!). Both Amazon and eBay make it easy for new participants to get online quickly and start selling.    Be ready with a good fulfillment operation.  Built on an excellent WMS, you must be able to accept orders simply, know accurately what inventory is available and pick, pack and ship the orders accurately and quickly.  If Amazon and eBay don’t shut you down for poor performance, your customer feedback will, unless you have excellent warehouse fulfillment processes in place. Another option is to donate your overstock inventory to charity.  In this case, it is imperative to have excellent records to validate your tax deduction.  These records can only come from an accurate and sophisticated WMS.  Nothing will put you in a better place to defend a tax audit than accurate and detailed inventory records.  If you are inclined to give your overstock inventory to charity, a good site to investigate this option is the National Association for the Exchange of Industrial Resources.  By giving to this charity (or others like it) you can take advantage of the IRS code section 170(e) (3), which permits a tax deduction of up to twice the cost of the goods donated.  Again, it is imperative to have good records from your WMS to validate quantities, inventory receipt dates, etc. Regardless of the course you choose to get rid of overstock inventory, the critical thing is to know about the problem before it gets too large.  Only by investing in a superior WMS can you keep abreast of inventory movement and monitor inventory accumulation before it becomes a problem. What’s the best WMS to help you ensure you never accumulate an unfortunate buildup of overstock inventory?

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