Writing a Lost and Damaged Stock Policy
Every business that holds stock eventually opens a box of broken mugs, finds a pallet that never arrived or discovers a case of goods past their best. A short lost and damaged stock policy turns those moments from a shrug and a bin bag into a quick routine: log it, photograph it, claim what you can and learn from the rest.
Key takeaways
- A lost and damaged stock policy is a one or two page document that tells staff exactly what to do when goods arrive broken, go missing or become unsellable.
- The core of the policy is a simple log: what, how many, cost, cause, who found it and what happened next.
- Photos and quick reporting are what let you recover money from suppliers, carriers or insurers, so build deadlines into the policy.
- Write-offs should need a second signature above an amount you choose, which protects both the business and the staff member.
- Reviewing the log every month shows you which supplier, shelf or process is quietly costing you money.
Mid-January is a good time to write this policy. The holiday rush has left its mark on the stockroom and the quieter weeks give you room to think. If your last count did not match your books, the gap is often dozens of small losses nobody wrote down.
This guide covers what to include, gives you a log template and shows how to roll the policy out without turning it into a blame exercise.
A quick note: this article is general information about stock handling and record keeping, not accounting, tax, insurance or legal advice. How you record write-offs for tax, and what your insurance covers, depends on your country and your policies, so check with your accountant and insurer.
What a lost and damaged stock policy covers
Think of the policy as an answer to one question your team asks again and again: "This is broken, what do I do with it?" A good policy answers that question for every common situation, in plain words, so nobody has to guess or wait for you.
Most small businesses need to cover five situations:
- Damaged on arrival. Goods that come in broken, crushed, wet or wrong from a supplier or carrier.
- Damaged in store. Items knocked off shelves, dropped in the stockroom, spoiled by a leak or soiled by customers handling them.
- Lost in transit. Inbound deliveries that never arrive, or outbound parcels to customers that disappear.
- Missing from stock. Items your system says you have but you cannot find. Theft is one cause, but miscounts, mispicks and paperwork errors are often bigger ones. (Shoplifting prevention is a separate topic, so this policy only covers how you record the loss.)
- Expired or unsellable. Food past its date, seasonal items you cannot sell, discontinued lines and customer returns that cannot go back on the shelf.
For each situation, the policy should say who deals with it, what evidence to collect, where the item goes, how it is recorded and whether anyone else needs to be told.
Small losses add up. If no one records them, your stock figures drift away from reality, reorder points stop working and margins look better on paper than in the bank. A clear rule also means a new team member never has to hide a broken jar.
Pro tip
Write the policy in the same language your team uses. If everyone calls it "the damages box" or "the write-off shelf", use that name. People follow rules faster when the words match what they already say.
Step by step: writing your policy
You do not need a lawyer or a consultant to write a working first version. Set aside an hour, gather whoever handles deliveries and stock, and work through these steps together.
- List your real problems. Look back over the last few months. Which goods arrived damaged? What went missing? What expired? Start with the situations you actually face, not every possible one.
- Name a stock lead. Pick one person who owns the log and the monthly review. In a tiny business that may be you. Also name a backup for days off.
- Set the receiving routine. Decide how deliveries are checked: count the boxes against the delivery note, look for crushed corners or wet patches, and open anything that looks damaged before signing where possible.
- Choose reporting deadlines. Suppliers and carriers often have short windows for reporting damage or shortages. Check each supplier's terms and your carrier's conditions, then set your internal deadline earlier than theirs.
- Define the evidence. Photos of the outer packaging, the inner packaging and the damaged item, plus the delivery note, order number and product code.
- Decide where damaged goods go. A labeled quarantine shelf or box keeps them separate from saleable stock until the claim is settled.
- Set approval levels. Choose an amount above which a write-off needs a second person to approve it. Below that, the person who found it can log and dispose of it.
- Agree on disposal options. Return to supplier, sell as seconds, donate, recycle or throw away, in that order of preference where it is safe and legal to do so.
- Plan the monthly review. Put a recurring 30 minutes in the calendar to read the log and look for patterns.
Receiving checks that save the most money
Most recoverable losses are caught at the door. A carrier may resist a claim if the delivery note was signed as received in good condition with no remarks. If you cannot check everything while the driver waits, note visible damage on the paperwork; check the carrier's terms for the wording that protects you and tell your team.
Common mistake
Unpacking a damaged delivery straight onto the shelves and only noticing the problem a week later. By then the packaging is in the recycling, the reporting window may have closed and nobody remembers which delivery it came from. Keep damaged boxes intact and in quarantine until the claim is resolved.
The lost and damaged stock log
The log is the heart of the policy. It can be a spreadsheet, a page in your inventory system, a shared form or even a clipboard in the stockroom that someone types up weekly. What matters is that every loss gets one line, entered on the day it is found.
Copy this template into a spreadsheet. The amounts below are made-up examples for illustration only.
| Date | Item and code | Qty | Unit cost (example) | Type | Cause or source | Found by | Evidence | Action | Recovered (example) | Approved by |
|---|---|---|---|---|---|---|---|---|---|---|
| 2028-01-08 | Ceramic mug, blue (MUG-014) | 6 | $4.50 | Damaged on arrival | Supplier A, crushed box | Sam | 3 photos, delivery note | Claim sent to supplier | $27.00 credit | Owner |
| 2028-01-11 | Candle gift set (CND-220) | 2 | $9.00 | Damaged in store | Dropped while restocking | Lee | 1 photo | Sold as seconds at half price | $0.00 | Not needed |
| 2028-01-13 | Online order parcel (ORD-5531) | 1 | $38.00 | Lost in transit | Courier, no tracking update for 10 days | Priya | Tracking screenshot | Customer refunded, courier claim filed | Pending | Owner |
Add a running total at the bottom, and keep the types to five or six with a free text "cause" field. Too many codes and people just pick the first one on the list.
Claims, write-offs and disposal
Once a loss is logged, the next question is whether you can get any money back and, if not, how to remove the item from stock properly.
Supplier and carrier claims
For goods damaged on arrival, the supplier is usually your first call, especially if they arranged the delivery. Send the photos, the order number and a clear description within your internal deadline. Ask whether they want the goods returned, destroyed or kept for inspection, and do not dispose of anything until they answer.
For outbound parcels, the claim usually goes to the courier, whose rules on packaging, declared value and timing apply. Keep proof of postage for every order.
Insurance
Larger losses, such as stock spoiled by a burst pipe or a freezer failure, may be covered by your business insurance, subject to your excess or deductible. Your policy will set out what is covered and what evidence the insurer wants. Add a line to your stock policy telling staff to call the owner right away for any single incident above an amount you choose, so you do not miss an insurance notification window.
Write-offs
When an item cannot be recovered, it comes out of your stock records and, at the right point, your books. Your accountant will tell you how they want write-offs recorded; your job is to give them clean, dated entries with costs and reasons. The second signature above a set amount is not about suspicion: it protects the person reporting the loss.
Disposal
Work through your options in order: return to the supplier, sell as clearly labeled seconds if the fault is cosmetic, donate usable goods, recycle, and only then dispose. Never sell or donate anything that could be unsafe, such as food past a use-by date or damaged electrical goods. When in doubt, throw it away and log it.
Hypothetical example
Imagine a small homeware shop run by Dana. After writing a policy in January, her team logs every loss for three months. The monthly review shows that most damaged-on-arrival entries come from one supplier, always in the same oversized boxes with little padding. Dana shares the photos with the supplier, who agrees to change the packing and credits the past claims. The review also shows breakages clustered on one high shelf near the till, so she moves the fragile lines lower. Neither fix would have been obvious without the log. (These details are made up for illustration.)
Rolling the policy out to your team
A policy that sits in a folder does nothing. The rollout is where it starts to save money.
- Keep it short. One or two pages, with a one page summary for the stockroom wall.
- Walk through it in person. A 15 minute huddle at the quarantine shelf is enough. Log one real damaged item together.
- Make reporting safe. Honest accidents are expected and will not be punished. Hidden breakages cost far more than reported ones.
If you employ staff, keep in mind that deducting the cost of breakages from wages is restricted or regulated in many places, and rules differ between countries and states. Check the rules where you operate before you even mention it, and in most cases simply leave it out of the policy.
Reviewing the log and cutting future losses
Once a month, the stock lead should spend half an hour with the log. Which supplier, product or spot in the shop appears most often? How much did you recover compared with what you wrote off? Then pick one or two fixes, such as new packing instructions, shelf lips or smaller orders of short-dated goods.
The log also keeps your wider numbers honest. Inventory turnover is cost of goods sold divided by average inventory, and unrecorded losses make average inventory look bigger than what you can actually sell. At each stock count, check whether the log explains most of the gap between system and shelf. A large unexplained difference is your signal to look harder at receiving, picking or security.
Your lost and damaged stock policy checklist
- List the loss situations you actually face
- Name a stock lead and a backup
- Write a receiving checklist and put it by the delivery door
- Note each supplier's and carrier's reporting deadlines
- Set up a labeled quarantine shelf or box
- Create the log using the template above
- Choose an approval level for write-offs
- Agree on disposal options, with safety first
- Brief the team and practice logging one item together
- Book a monthly 30 minute log review
Frequently asked questions
How long should I keep the log and claim records?
Keep them with your other business records. In the US, the IRS generally expects records to be kept for at least 3 years after filing, and longer in some cases. In the UK, sole traders keep records for at least 5 years after the 31 January filing deadline, and companies for 6 years from the end of the financial year. Check the current rules with your accountant.
Should staff pay for things they break?
In most cases, no. Wage deductions for breakages are restricted in many countries and states, and a blame culture leads to hidden damage. Treat honest accidents as a cost of doing business and focus on fixing the cause.
What if I cannot tell whether an item was lost or stolen?
Log it as "missing, cause unknown". Over time, patterns in the log will tell you more than guessing on the day. If a pattern points to theft, review your security separately.
Do I need special software for this?
No. A spreadsheet or a simple online form works well for most small businesses. If your point of sale or inventory system has a damages or adjustment feature, use it, but keep the reason and evidence fields filled in.
The bottom line
A lost and damaged stock policy is one of the cheapest controls you can put in place. Check deliveries before you sign, quarantine anything damaged, log every loss on the day with photos, claim what you can quickly and review the log once a month.
Write the first version this week using the template above, walk your team through it and treat every entry as information rather than blame. Within a few months you will know exactly where your stock goes, and you will have the evidence to get more of it back.
