Broken and damaged goods: recording losses

In the sales area a tea bowl slipped from a hand and shattered. You swept up the pieces and went back to work. At month end the count is three bowls short, yet the notebook looks fine. You think "shortage!", but it is really an unrecorded loss. Broken goods are an issue too, just one that brings no money. Record it and you gain two things: the balance becomes right, and you see where breakage happens most.

Why broken goods must appear in the records

First, unrecorded, it goes into the shortage and hides the real cause. Second, a claim on the supplier works only with a document and a date. Third, your profit comes out inflated, because when you subtract cost from sales you ignore the money for goods that broke. Fourth, repeated losses show where the weak spot is.

Damage comes in three kinds:

• broken outright (smashed, cracked, split), cannot be sold;
• spoiled appearance (crushed box, torn label), can be sold at a discount;
• wet or discoloured, to be decided by condition.

What to do the moment it breaks

1. Safety. Do not pick up shards of glass and porcelain by hand: use gloves, a brush and a dustpan. Do not sell crockery with a chip on the rim, as a customer could cut a hand.
2. Count. How many pieces broke and how many remain in the box.
3. Keep. If you will claim from the supplier, do not throw out the pieces and the box; take photographs.
4. Record. Enter a row "issue: breakage" in the journal with the date, item code, quantity, cause and who logged it.

Decide on the spot. Those who plan to "write it up at month end" will remember not three bowls then but seven or eight. Write down the small things too: one bowl costs 14,000 so'm, but ten a month is already 140,000.

Group the causes

Add a cause to every entry: broken on delivery, on the shelf, in the sales area, in transport or while packing. At month end add up by group. An example: 10 boxes of 24 arrived, 240 bowls. During the month 9 broke: 4 on delivery, 3 on the shelf, 2 in the sales area. The breakage rate is 9 ÷ 240 = 3.75 per cent. At a cost of 14,000 so'm each, the loss is 9 × 14,000 = 126,000 so'm.

These figures show what to do. The four lost on delivery (56,000 so'm) may be the supplier's responsibility. The three on the shelf suggest heavy boxes stacked on each other or a shelf that is too narrow. The two in customers' hands tell you to move the goods to a lower shelf or a safer spot.

Online sellers have one more cause: goods break in transit. Wrap fragile items in two layers of paper or bubble wrap, fill the box without gaps, mark it "Fragile" and photograph the packed item. If a courier damages the parcel the picture is your evidence, and if the packing failed it shows what to improve next time.

The claim on the supplier

Open the box on the day of receipt, or at least inspect it. Photograph the breakage, ask for "damage present" and a date on the document or the courier sheet. The claim period is often short, so settle it in the contract or in a verbal agreement. Breakage not found on the day of receipt is hard to raise later.

The write-off sheet

At month end put the broken goods on one sheet: item, quantity, cost, cause. Two people sign it: one writes off, the other confirms. This is protection, not punishment: later nobody doubts what happened to the broken goods. Set yourself a norm, say 2 per cent. If it is exceeded, the cause has to be removed.

Do not throw away goods with a crushed box that are sound inside. Mark them "B-grade" and sell them under a separate code at 15–20 per cent off. Keep them apart from the main stock: the price differs and the records need two rows.

Conclusion

Broken goods are no disgrace, just an ordinary running cost. Record them and the balance is right, the claim rests on a document and the causes of breakage are visible. If you cannot manage to sort damaged goods from sound ones, the Sanab team will count them by condition and show the losses on a separate line of the report.