Inventory Obsolescence Reserve is a business term used to describe the amount of money set aside by a company in order to cover losses due to outdated inventory. This reserve is important because it ensures that a business can continue to finance its operations even when certain products become obsolete or are unable to be sold. Companies typically use this reserve to offset any potential losses from their inventory, such as providing discounts or absorbing losses from write-offs. With an effective Inventory Obsolescence Reserve, companies can maintain steady cash flow and avoid financial difficulties.