Unsaleables Allowance

Shrinkage Credit

Losses from theft, breakage or expiration are factored into this budget. By providing this credit upfront, the manufacturer acknowledges that perfect delivery and sales are impossible. It removes the need for the distributor to return every individual damaged unit for a refund.

This upfront credit is based on historical data for the specific product category.

Expense Cap

Agreements often limit the total amount the manufacturer will pay for these losses in a single year. If the actual cost of unsaleable goods exceeds the allowance, the distributor must absorb the extra cost. This encourages the distributor to handle the products carefully and manage their inventory levels.

Liability Transfer

Ownership of the damaged goods usually stays with the distributor once the credit is applied. They are responsible for the proper disposal or salvage of the items. This transfer of responsibility simplifies the logistics for the manufacturer, who does not want to receive small quantities of broken products.