risk of loss
Definition
Risk of loss refers to who is financially responsible if goods are damaged, destroyed, or stolen during a transaction. Whoever holds the risk of loss at the time something goes wrong has to absorb that financial hit, even if they never physically touched the goods.
Example
You order 500 custom t-shirts from a supplier and they get destroyed in a warehouse fire before shipping, so whether you or the supplier eats that cost depends on who held the risk of loss at that moment.
Watch Out
Your sales contracts should spell out exactly when the risk of loss transfers from the seller to you, because without that clarity you could end up paying for goods you never received.
See which terms appear in your contract?
This definition is for informational purposes only and does not constitute legal advice. Please consult with a licensed attorney for legal guidance.