Pharmacy Accounting in Iran: Insurance Receivables and Stock on a Thin Margin

This is written for pharmacy owners, responsible pharmacists and the accountants who keep their books. A pharmacy is an unusual combination: a retail unit with regulated prices, a contracting party to several insurance organisations, and a store of thousands of items that all carry expiry dates. In the files I have handled in this sector, two numbers decide the outcome of the year: the insurance collection cycle and the deduction rate.

Why a pharmacy is not ordinary retail

Three structural differences. First, consumer prices for most lines are regulated and your margin is a prescribed percentage — unlike a normal shop, you do not hold the pricing lever, so profit can only be improved through cost and inventory control.

Second, a large part of your sales is not collected at the counter. The patient pays only their share; the rest becomes a receivable collected months later and after deductions.

Third, your goods expire, and an expired item is not worth zero — it is worth less than zero, because disposal carries its own cost.

Revenue structure

If these five streams land in one revenue account, you will see neither the true margin of each nor a correct VAT return.

Insurance receivables: the cash flow bottleneck

Electronic prescribing has made claim submission easier, but the review and settlement cycle is still long. The procedure I recommend:

1. Submit each insurer's claim file on a fixed schedule without delay; a late submission multiplies the collection delay.
2. Give every submitted batch an internal tracking number and post its value to that insurer's receivable account.
3. Age the receivables by insurer and submission month, not as a single total.
4. Allocate each remittance advice to specific batches; unallocated receipts make the account untraceable within months.
5. Classify notified deductions by cause: incomplete prescription, quantity mismatch, item outside cover, prescribing defect.
6. File objections to deductions within the permitted window, with supporting documents.
7. Write off claims only once irrecoverability is established, and take them to expense at that point.

General receivables principles are covered in the receivables article.

The common error is booking revenue gross and letting deductions surface months later as an expense. Profit is then overstated in the submission month and understated in the settlement month. Recognise a deduction provision at submission based on your historical rate and adjust it on settlement.

Inventory and expiry control

A pharmacy typically carries thousands of active lines, and a significant part of working capital sits on the shelf. Three controls matter:

• First-expiry-first-out. Shelf layout and dispensing must follow the nearest expiry date, not purchase order.
• Monthly six-month expiry report. The list of items expiring within six months is the basis for negotiating returns or exchanges with the distributor. Once the contractual return window closes, the loss is certain.
• Destruction records. Expired items must be removed under a signed record complying with health regulations. Without it, goods leaving the store are read on audit as sales made without an invoice, not as wastage.

Count high-value and fast-moving lines monthly rather than waiting for the annual count.

VAT

Medicines and consumable medical supplies are on the VAT exemption list. But a pharmacy does not sell only medicine: cosmetics, personal care items, some supplements and non-medical devices carry the standard 10 percent rate. Two practical consequences:

• The POS system must hold the correct tax status per item and report taxable and exempt sales separately.
• Input credit is available only in proportion to taxable activity. If purchases are not split, the whole credit is exposed to reversal on audit, and shared input must be apportioned on a documented, consistent basis.

Mechanics are covered in the VAT article.

Tax duties and e-invoicing

Turnover usually places pharmacies in the first group of business taxpayers: statutory books, transaction listings and a return filed on time. Card terminals must be linked to the tax file, and electronic invoicing applies. One technical point that is often missed: an exempt product does not exempt you from issuing an invoice — the invoice is issued and the exempt line is recorded at a zero rate. See the taxpayer system guide.

Monthly numbers worth watching

• Collection days per insurer
• Deduction rate and its trend; a rising rate usually has a process cause, not an insurer cause
• Stock turnover and the share of dead lines in stock value
• Value of items expiring within six months
• Contribution of OTC and taxable lines to gross profit — often larger than their share of sales

Key takeaways

• There is no pricing lever in a pharmacy; profit comes from stock and deduction control.
• Keep the patient share and insurer share in separate accounts from day one.
• Provide for claim deductions at submission, not months later.
• Medicines are VAT-exempt but cosmetics are not; classify items and apportion input credit.
• Expired stock removed without a destruction record is treated as sales on audit.