Inventory Ageing and Slow-Moving Stock

The same technique, a different asset

Receivables ageing buckets invoices by how long they have been outstanding. Inventory ageing does exactly the same thing to stock: it buckets each line by how long it has sat in the warehouse without sales movement since purchase or production.

Stock bought this month is low risk and expected to be in normal use. Stock that has sat six months, or a year, with no movement at all is a signal — overordering, a customer relationship that ended, or a product that has simply stopped selling.

Not every line carries the same risk

Look at a range by product type rather than by total value. Commodity fastener lines — hex bolts, ordered and consumed in volume — are likely fast-turning. Higher-value precision components, ordered against specific customer demand, carry a real risk of sitting if that demand does not materialise.

A single inventory total hides that difference completely. Ageing at product level is what surfaces it.

Why aged stock needs a provision

The logic is the same as the allowance for doubtful debts, applied to a different asset. An old, uncollected receivable is unlikely ever to be collected in full; old, unsold stock is unlikely ever to be sold at its full recorded cost. It may need heavy discounting, or scrapping.

A Provision for Slow-Moving and Obsolete Inventory recognises that expected loss in advance — same honesty principle, same ageing-driven reasoning.

Target the provision, don’t spread it

Suppose one batch of a single fitting has sat unsold for over a year while every other line turns over within weeks. Is the conservative answer to provide against all inventory equally?

No. Blanket-providing against healthy, fast-turning stock understates the real asset value for no genuine reason. A targeted provision against the specific identified batch reflects the actual risk honestly, exactly where it exists. “Conservative” is not the same as “accurate”, and only one of them is the objective.

A workable graduated structure

Review inventory by product, flag anything with no sales movement for six months or more, and apply a graduated provision rather than one flat rate:

• —0–3 months: no provision.
• —3–6 months: a modest provision, in the region of 10–25%.
• —6–12 months: around 50%.
• —Beyond 12 months with no realistic prospect of sale: 75–100%.

The percentages are a starting convention, not a rule. What matters is that the structure is graduated by genuine likelihood of eventual sale, and that it is applied consistently.

The cost that bites before any write-off

Slow-moving stock is not only a future write-off risk. It is an active cost right now. Every rupee tied up in unsold inventory is a rupee not sitting in the bank earning interest, not reducing a loan balance, and not funding a faster-turning product line.

Holding ₹1,00,000 of genuinely dead stock for a year has a real opportunity cost before a single rupee of provision is ever posted.

Common mistakes

• —Ageing stock from the purchase date while ignoring last sales movement.
• —Applying one flat provision percentage across the entire inventory balance.
• —Reviewing only the total inventory figure, which hides every slow-moving line inside it.
• —Treating the holding cost of dead stock as zero until it is finally written off.
• —Changing the provisioning basis each period so the trend becomes unreadable.