To get the right credit for a damaged supplier delivery, count what arrived, decide the outcome for each damaged line, then post it separately. A delivery with crushed cartons or a few broken units is a money problem before it is a stock problem. If the supplier bills you for the full order, you pay for goods you cannot sell. If you post the delivery at full quantity and let the damage slide, your shelf count and your supplier balance will disagree, and someone will spend an afternoon tracing the gap back to the dock door.
Key takeaways
- Count and mark damaged units at the dock, before anyone moves the cartons.
- Decide the return or allowance for each damaged line, and confirm the figure in writing before you post.
- Post each outcome as a separate entry that points back to the purchase order and delivery note.
Most shops deal with damage by phoning the supplier and agreeing on something. That works until the credit never shows up, or it arrives for the wrong amount, or nobody can remember which cartons were damaged and which were fine. The fix is not complicated, but the order matters. The three checks below run from the loading dock to the posting screen, and each one depends on the one before it.
To make the numbers concrete, this post uses a worked example from an accounting textbook. OpenStax's Principles of Accounting, Volume 1 follows a company called CBS, which buys printers on credit and then finds damage after delivery. CBS is not a shop like yours and the printers are not your stock, so do not copy its figures into your books. Borrow the pattern instead: count what arrived, decide what happens to the damaged units, then post each outcome on its own line.
One more note before we start. The textbook example uses a perpetual inventory system, which means the stock record changes every time goods move in or out. If your shop only counts stock at month end, the same checks still apply. You will just find the gaps later, when they are harder to explain, so it is worth doing the checks at the dock.
1. Match the carton count to the purchase order before anyone signs
Start with the paperwork the driver hands you. Compare the supplier name, the purchase order number, the item description, the quantity on each line, and the unit cost on the delivery note or invoice against your own purchase order. Any mismatch in those fields is a question for the supplier before you accept the goods, not after you have posted them. Check the PO number first, because a delivery that points at the wrong order is the hardest mismatch to untangle once it is in your system. Check the unit cost too. If the invoice price differs from your purchase order, that is a pricing question, and it is far easier to raise while the driver is still in front of you than after the invoice has reached your payables queue.
Then count. Count units, not only cartons. A carton labelled as twelve may hold eleven, and a mixed case may be short one line. Write the received quantity next to each PO line, either on the paper copy or in your receiving system. If the driver is still there, ask them to wait while you count. A signature on a clean-looking delivery note can be read later as acceptance of the whole load, including the units you did not check.
When you find damage, separate it from the good stock. Do not write "received in good condition" on the note if part of the order is broken. Write what you actually have. A useful habit is to record two numbers for each line: units received in usable condition and units received damaged. A line that says "received 80, of which 15 damaged" tells the supplier and your bookkeeper exactly what happened. A line that says "received 80" hides the problem and leaves the damage to be argued about later.
Record three kinds of problem on their own lines as well. A short shipment means units are missing from the carton count, which is different from units that arrived broken. A wrong item means the goods are not what you ordered, and that usually leads to a return rather than a discount. A damaged item means the goods are what you ordered but cannot be sold as they are. One vague note that says "some problems" covers all three cases badly, and the supplier will read it in whatever way suits them.
Take photos before anyone moves the cartons. Get the item, the damage, the carton label, and the delivery note into the same frame where you can. Photos taken on the day are more useful in a dispute than a description written a week later, and they cost nothing to take. Save the files with the delivery record, not on someone's phone, so the person who handles the credit can find them without asking the receiving clerk.
Log the delivery in the same shift it arrives. Damage that is written up the same afternoon has a clear time and a clear witness. Damage that is discovered three days later, when the cartons have been opened, stacked, and partly sold, is much harder to link back to the truck. If your shop has more than one person on the dock, agree who signs for the delivery and who checks it, and make sure the two names appear on the note. Shared responsibility sounds sensible, but when nobody owns the count, the count tends to be skipped.
The textbook starts from the same kind of clean record. CBS buys 80 units of a desktop printer at $100 each on July 1, on credit. The example records that purchase in a simple way: both the merchandise inventory account and the accounts payable account go up by $8,000, which is $100 times 80. That is the figure your count has to support. If you received 80 units and only 65 are usable, your count tells you that the stock record is overstated by the 15 damaged units until you decide what to do with them. Until that decision is made, the damaged units should not sit on the shelf as saleable stock.
Move the damaged units to a clearly labelled area away from the sellable stock. Write the PO number, the date, and the reason on the label. This small step stops a damaged unit from being sold, returned by a customer, or counted in the next stock take as if it were fine.
2. Decide the credit for each damaged line before you call the supplier
Once you know the damaged count, decide what you want for each damaged line. In practice there are usually two outcomes. You can send the damaged units back and ask for a full refund, or you can keep them and ask for an allowance, which is a reduction in what you pay for goods you keep. A third option is to refuse the whole line, but that is a bigger decision and usually needs a conversation with the supplier before anything moves. Decide the outcome line by line. Do not mix a return and an allowance on the same line, because the credit figure will be harder to check later.
The textbook shows both outcomes in sequence. On July 6, CBS finds 15 of the printers damaged and returns them to the manufacturer for a full refund. The accounts payable balance drops by $1,500, which is 15 times $100, and the inventory account drops by the same amount. Then on July 10, CBS finds that 4 more printers from the same July 1 purchase are slightly damaged. This time it decides to keep them, and the manufacturer issues an allowance of $30 for each printer. The payable drops by $120, which is 4 times $30.
Put those two entries together and the balance owed after both is $8,000 minus $1,500 minus $120, which leaves the remaining balance on the units you kept. The figures come from the example, and your own numbers will be different, but the logic carries over. A full refund removes units from your stock and from what you owe on them. An allowance leaves the units on your shelf and reduces what you owe for them. Those are two different things, and your posting has to show which one happened, or the stock record and the supplier balance will drift apart.
Before you pick an outcome, check three things. First, does the supplier accept returns for this product at all? Your purchase terms or the supplier's returns policy will answer that, and it is worth reading before you ship anything. Second, what does a full refund cost you in shipping and handling compared with the allowance you would keep? Sometimes keeping slightly damaged goods at a discount is the sensible choice, and sometimes sending them back is cheaper than selling them at a markdown. Third, can you sell the damaged goods at a reduced price without a customer being misled about their condition? If you cannot be clear about that, the allowance is less attractive than it looks on paper.
Next, agree the figure in writing. A phone call that ends with "we will sort it out" is not a credit. Send a short email that names the PO number, the item, the damaged quantity, and the credit you expect, either the full value of the returned units or the allowance for each unit. Ask the supplier to reply with confirmation. If the reply changes the figure, you can correct it before the bill is paid instead of arguing about it afterwards.
Ask for a return reference before you ship any damaged goods back, and write that reference on the shipping label and on your record. Goods that come back without a reference are much harder to match to a credit, and they are easy to lose track of while both sides assume the other has the paperwork. If the supplier will not give you a reference, ask who is responsible for the shipping and get that agreement in writing too.
Do not post the credit until you have the supplier's confirmation, unless you are recording a dispute that is still open. If you have to post before the supplier replies, record the disputed amount in a way that is clearly marked as disputed, so that nobody pays it by mistake and nobody treats it as settled. Your bookkeeper or accountant can tell you how your system handles that, since the details depend on the software and the way your accounts are set up.
Expect the supplier to push back on some claims, and plan for it. They may say the damage happened after the goods left their warehouse, or they may question whether the units were already damaged before loading. Your best answer is the evidence you gathered at the dock: the same-day photos, the delivery note with the damaged count written on it, and the time you logged the delivery. Send that evidence with the claim rather than waiting to be asked for it. A claim that arrives with photos and a clear count is much easier to settle than one that arrives as a phone call and a promise to send pictures later.
If the supplier disputes only part of the claim, do not let the whole thing stall. Agree the undisputed units first and post that credit once it is confirmed. Then keep the disputed units on hold in their labelled area until the disagreement is settled. Splitting the claim this way means the shop gets the money it is owed on the lines nobody disputes, and the remaining question stays small and specific. For another view of the claim steps, see Supplier refund: 3 counts to check before a claim.
Illustrative example: 10 damaged units out of 80
A shop receives 80 units on one purchase order line and counts 70 in usable condition and 10 damaged. It records both numbers on the delivery note. The 10 damaged units go back to the supplier for a full refund, with a return reference on the label. The 70 usable units stay on the shelf and are posted as received. The two outcomes go in as two separate entries, so the stock record and the supplier balance can be checked line by line.
3. Post each outcome separately and keep the paperwork
Now post the delivery and the credits. Keep them as separate entries that point back to the original purchase order and delivery note. A single lump adjustment that nets everything together looks tidy on the day you post it, but it makes the next audit or supplier query harder, because nobody can see which units were returned, which were kept, and which credit belongs to which line. Each entry should carry the PO number, the item, the quantity, the outcome, and the amount, so that someone reading it cold can follow the story. For the posting step itself, see Inventory adjustment: 6 checks before updating shop stock.
Check your supplier balance against the supplier's statement once the credits are posted. The two figures should agree. If they do not, the difference usually comes from one of three places: a credit that was agreed but never issued, a return that was shipped but not yet received by the supplier, or a line you posted at the invoice quantity rather than the quantity you actually received. Work through those three possibilities in that order. Each one has a different fix, and guessing at the answer usually makes the gap bigger.
Set a regular date to repeat this check, such as at the end of each month or before each supplier payment run. Damage credits that were agreed in one month often turn up as a mismatch in the next, when the original emails are harder to find and the person who handled the call has moved on to other work. A short monthly review of open damage claims, with each one marked as agreed, shipped, received, or disputed, keeps the list honest. It also gives you a clear figure to bring to the supplier when you ask about a credit that has not appeared.
Then keep the records, and keep them together. The Internal Revenue Service's page on how long to keep records says that records help in preparing future tax returns and making computations if you file an amended return. That is the practical reason to keep the delivery note, the photos, the purchase order, the invoice, the supplier's confirmation email, the return reference, and the credit note in one place. The same page sets out questions to apply to each record as you decide whether to keep a document or throw it away. Read those questions before you clear out old receiving files. Do not assume that an old delivery can be binned just because the stock has sold, because the credit that came from it may still need checking.
Give the receiving clerk a short written routine they can follow without you in the room. The routine can be three lines long: count the units on each PO line, mark the damaged units separately, and photograph the damage before anyone moves the cartons. Ask them to write the time and their initials on the note. A routine like this does more to protect the shop than any amount of tidying up after the fact, because the record is made when the goods arrive, while everyone still remembers what the cartons looked like.
Run the three checks in order every time. Count and mark at the dock. Decide and confirm the credit before you post. Post each outcome separately and keep the paperwork with it. A damaged delivery is annoying on the day it arrives. It only becomes expensive when the record does not match the goods on the shelf.