jlb said:

Negative inventory is a necessity,

If it's a necessity imposed on you by the owner(s) and you can't ever change it, run, don't walk, away.  Life's too short.

jlb said:

We have thousands of items which have been sold "by the case" instead of "by the each",

Once used, you can't change the purchase / stored / sold as relationships.  Make a backup, Export your item and price lists, Export your summary into Excel. 

Put three 'z's in front of all the bunged up numbers. 

Set up new item numbers and set up the relationships. 

Post your inventory adjustments and fix any open orders to point to the correct items.

Or, restore an older backup from before the mess was created, and enter everything in a logical order, correctly.

jlb said:

Negative inventory is a necessity,

I believe that you believe that, but it might not be so.  Without that control you will be spending a lot of time playing whack-a-mole with people who record buying 1, 205 litre barrel for $750 and later bill it out as 205 litres from a barrel, over-riding the $1000 price to $5.10.  There's no 'negative margin' warning in Sage 50 that the cost of that $1,000 sale is $153,750.  Fixing even one mess like that is painful.   Fixing a thousand such messes is impractical.   Keeping your system configured to make crazy entries easy, will only get you a lot more of them. 

Obviously, if you can't get any bills out because the inventory system is so wrong it won't let you sell stock, your business will die a quick death, but if your prices are wrong it could die a slow one instead.  You may have a purchaser buying SKF bearings and a sales person / shipper billing out BSO bearings below your cost while booking *excellent* margins... until you look into why you have minus 37 bearings on hand, and 36 expensive bearings on the books that don't exist on the shelf.  You don't want to trade a quick death for a slow one, you want to prevent things from going wrong, as much as possible. 

So, please don't use 'negative inventory' unless it's absolutely a short-term survival issue for your business.  Use it as you would use a life raft or a temporary spare.

jlb said:

an order before invoicing will help some in future.

Entering an order (sales order or purchase order) has no effect whatsoever on the costing system.  But, it does give you a record of what was received, and what should be invoiced.  Note the check box beside 'invoice received' on the Purchase Invoice screen. 

Nothing will help long term, other than receiving goods ASAP, so that you can invoice your customer from stock ASAP.   (All the while badgering your suppliers to invoice you ASAP.)

jlb said:

 If inventory costing is changed to FIFO will this help?

It won't go right, but it will go less bad, since the crazy negative inventory averaging effect on sales invoice adjustments won't be stirring past errors into a noxious stew of wrongness. 

Smaller, supply-type items can be set as 'Service' items.  Nobody's going to count Marettes and lock washers, so just expense them when you buy them, and book 100% revenue when you sell them.  Your inventory account for supplies can be a once-a-year journal entry based on a reasonable estimate.

I don't work for Sage, so these are my own opinions born out of thousands of hours of fixing inventory train wrecks.  Please post back.

jlb said:

Negative inventory is a necessity,

If it's a necessity imposed on you by the owner(s) and you can't ever change it, run, don't walk, away.  Life's too short.

jlb said:

We have thousands of items which have been sold "by the case" instead of "by the each",

Once used, you can't change the purchase / stored / sold as relationships.  Make a backup, Export your item and price lists, Export your summary into Excel. 

Put three 'z's in front of all the bunged up numbers. 

Set up new item numbers and set up the relationships. 

Post your inventory adjustments and fix any open orders to point to the correct items.

Or, restore an older backup from before the mess was created, and enter everything in a logical order, correctly.

jlb said:

Negative inventory is a necessity,

I believe that you believe that, but it might not be so.  Without that control you will be spending a lot of time playing whack-a-mole with people who record buying 1, 205 litre barrel for $750 and later bill it out as 205 litres from a barrel, over-riding the $1000 price to $5.10.  There's no 'negative margin' warning in Sage 50 that the cost of that $1,000 sale is $153,750.  Fixing even one mess like that is painful.   Fixing a thousand such messes is impractical.   Keeping your system configured to make crazy entries easy, will only get you a lot more of them. 

Obviously, if you can't get any bills out because the inventory system is so wrong it won't let you sell stock, your business will die a quick death, but if your prices are wrong it could die a slow one instead.  You may have a purchaser buying SKF bearings and a sales person / shipper billing out BSO bearings below your cost while booking *excellent* margins... until you look into why you have minus 37 bearings on hand, and 36 expensive bearings on the books that don't exist on the shelf.  You don't want to trade a quick death for a slow one, you want to prevent things from going wrong, as much as possible. 

So, please don't use 'negative inventory' unless it's absolutely a short-term survival issue for your business.  Use it as you would use a life raft or a temporary spare.

jlb said:

an order before invoicing will help some in future.

Entering an order (sales order or purchase order) has no effect whatsoever on the costing system.  But, it does give you a record of what was received, and what should be invoiced.  Note the check box beside 'invoice received' on the Purchase Invoice screen. 

Nothing will help long term, other than receiving goods ASAP, so that you can invoice your customer from stock ASAP.   (All the while badgering your suppliers to invoice you ASAP.)

jlb said:

 If inventory costing is changed to FIFO will this help?

It won't go right, but it will go less bad, since the crazy negative inventory averaging effect on sales invoice adjustments won't be stirring past errors into a noxious stew of wrongness. 

Smaller, supply-type items can be set as 'Service' items.  Nobody's going to count Marettes and lock washers, so just expense them when you buy them, and book 100% revenue when you sell them.  Your inventory account for supplies can be a once-a-year journal entry based on a reasonable estimate.

I don't work for Sage, so these are my own opinions born out of thousands of hours of fixing inventory train wrecks.  Please post back.

Thank you so much for your honest and heart-felt opinions. I concur!
Having said that, my client is adamant about negative inventory. They have more than 5000 items, so I don't really want to mess with too much. They are pretty clear now on case vs each errors. Will reset to FIFO at Jan 1, since I adjusted everything at year end. Best I can do is advise them that cleaning up their mess is expensive!
Question: If setting up a sales order (not posting an invoice before stock is received) doesn't help with costing what is the point?

jlb said:

If setting up a sales order (not posting an invoice before stock is received) doesn't help with costing what is the point?

You asked about using Orders, which have no effect on the Quantity and Value on hand, or on the Last Cost when using negative inventory.  If everything else was the same, then it wouldn't help, BUT:

Not posting a sales invoice before stock is received, is exactly the point!.  Once the practice of banging out sales invoices before receiving stock is stopped, the whole negative inventory crazy train becomes un-necessary, and can be shut down.

When a customer pays before delivery of goods, use a Sales Order with a Deposit (just change the 'Pay Later' at the top of the Sales Order window) to record the receipt of cash without recording anything in the inventory transaction records.  It will update the Quantity table's On Sales Order quantity, which affects the Item ledger record's calculated To Order quantity (reported in the Quantity report in Pro / Premium, also in the vendor price comparison report in Quantum.   So they will always be able to see how much to replenish stocking items, even before the sales invoice is posted.

When converting the Sales Order to an invoice, the Deposit payment is automatically applied.

jlb said:

They have more than 5000 items, so I don't really want to mess with too much.

Using the Export, doing a mass rename, and then importing the items back, would be the easiest way to wipe the slate clean.  But if they continue with negative inventory, then they're back to the pattern of:

1. create new item code

2. Sell some of new item code at zero cost.

3. Try to receive some quantity of new item code at not zero cost, causing a Variance Adjustment.

If there's a fiscal year end between 2. and 3, the income statement is wrong - no costs.   Correcting the minus quantity after step 2 at year end also doesn't help, since there's been no cost applied.

Sage stores the quantity on hand, the value on hand, and a third number, the last cost.  The last cost is updated for every purchase transaction, based on the purchase quantity and cost.  It's not updated by sales transactions in average costing, because it's the average.  BUT when a sales invoice adjustment is posted, the average is recalculated after the reversal, and before the new sales transaction. 

So you may start with:

-3 qty on hand, value $-300, average cost $100 each.

Then you post a sales invoice adjustment (say, a correction of the street address) containing a sale of 4, at an average cost of $130.50 each (total $522) before the reversal. Now you have:

+1 qty on hand value $222, average cost $222 each.   (for about 10 microseconds)

The software then posts the sale again, average cost $222 each * 4 items are removed; $888 subtracted from 222:

-3 qty on hand, value $ - 666 See, it's gone evil again...

jlb said:

Will reset to FIFO at Jan 1, since I adjusted everything at year end.

This will stop the especially crazy reversal problem, since (as far as I know) the 4 items are reversed into a cost pool that is then immediately re-used.  

jlb said:

They are pretty clear now on case vs each errors.

As long as they have negative inventory, unless they very regularly are researching and correcting the causes of quantities going negative, they won't have accurate records and efficient operations.  It's a matter of economics - simply put, it takes more time and money to fix the resulting mess (in total) than it does to do the work to 'clean as you work'.  Working on cleaning up thousands of mangled inventory records doesn't feel like progress at first.

Unless there is a procedure to verify each positive inventory quantity back to a quantity in a specific place, and they are careful about not having duplicate part numbers (we use the Additional Info records for bin locations, and a Grouped Item List as a shelf count sheet) then there is a risk that inventory is over-stated.