Pharma distribution: batches, expiry returns and chemist credit

The pharma supply chain

Pharmaceutical companies sell through C&F; agents in each state to stockists or distributors, who supply retail chemists, hospital pharmacies, nursing homes, clinics and sub-stockists. Distributors usually carry several companies' ranges. Margins at each level are largely fixed by trade practice and, for price-controlled medicines, limited by the maximum retail price. The distributor must hold a valid drug licence and follow storage rules, including cold-chain for some products.

Companies offer schemes on selected products, typically as free quantity, and set credit terms for the distributor. Chemists in turn expect credit, and hospitals often pay on long cycles.

Batches, expiry and storage

Every pack has a batch number, manufacturing date and expiry date, and invoices to chemists normally show the batch and expiry. Tally can maintain batch-wise stock with expiry dates when the feature is enabled, which lets the billing team pick the earliest-expiring batch first. Selling first-expiry-first-out is the only way to keep expiry losses small.

Products near expiry come back from chemists. Most companies accept expiry returns under their own policies, often with limits or time windows, and settle them as credit notes or replacement goods. Keep a separate record of expiry returns by company, with the dates sent and settled, because these claims are slow and easy to lose track of.

Orders: fast and many

Chemists order several times a week, often by phone or WhatsApp, and expect delivery the same day. Orders are small and many, and the distributor's counter and delivery staff work against the clock. Medical representatives of the companies also influence what chemists stock. Distributors with field salesmen visit chemists on fixed routes to take orders and collect payment. A beat plan helps salesmen cover every outlet without overlap.

Credit and collections

Chemist credit is normally short, often a couple of weeks, but in competitive markets it drifts. Hospitals and institutions may pay in 60 to 90 days or longer. Bill-wise tracking is essential, because a chemist who pays round amounts can leave old bills open for months.

See ageing analysis for how to read overdue bills.

Schemes, free quantity and margins

Pharma schemes usually take the form of free quantity, for example ten plus one, on selected products for a period. The distributor may receive free goods from the company and pass some or all of them to chemists. If the free quantity is not recorded properly, stock in Tally will not match the shelf, and the effective purchase and selling rates will be wrong.

Record free goods on the purchase and sales vouchers as the company and your accountant agree, so the quantity enters and leaves stock. Watch the effective margin per product after schemes, because a product with an attractive scheme but slow sale can tie up money longer than its margin justifies. Also review rate differences when a company revises prices: stock bought at the old rate and sold at the new one needs a clear policy, and some companies issue price-difference credit notes that must be matched.

GST and compliance points

Medicines, medical devices and related goods fall under different HSN codes and GST rates, and some rates have been revised, so verify the current rate for each item on the GST portal. Free scheme quantity and expiry returns have their own GST treatment; settle the approach with your accountant. Drug licence numbers are commonly printed on invoices along with GSTIN. Licence and storage rules are set by drug control authorities and are separate from tax rules. This is general information, not tax or legal advice.

Where Cashflow OS fits a pharma distributor

Cashflow OS shows what your TallyPrime books hold, on the phone and web. Batch and expiry details stay in Tally; Cashflow OS does not run a separate batch system. What it adds is visibility and field tools: bill-wise outstanding and ageing for every chemist and hospital, party statements on WhatsApp, salesmen with a Today screen of chemists to visit, orders posted to Tally as sales orders, and collections recorded in the field. The owner can check company payables and sales by period from anywhere. See outstanding receivables.