What should I do on Etsy if a customer's inbound package is damaged by UPS?

Hi! In this situation, the cleanest (and safest for your shop) move is usually to cancel the Etsy order and issue a full refund, then have the buyer re-place the order only after they’re ready to ship a replacement item to you (or after you both agree on an alternate plan). Since you can’t complete the order without their materials—and their package was destroyed in transit—you don’t want the order to run past the ship-by date and turn into an “item not received” dispute on Etsy.

A good way to handle it (refunds + timelines)

1. Keep everything in Etsy Messages.
   Send one clear message that UPS marked the inbound package as damaged and discarded, so you never received the item and can’t start/finish the custom work.

2. Give the buyer two simple options.

   • Option A (recommended): Cancel + full refund now. They pursue the UPS claim on their side (they’re the shipper), and when/if they have another item to send, they can reorder.
   • Option B: Keep the order open only if they can immediately ship a replacement item to you. If you do this, you should update the order’s ship-by date (and only do it with the buyer’s written approval in Messages) so you don’t get hit for late shipping.

3. If you cancel, refund first, then cancel the order in Shop Manager.
   That keeps your bookkeeping clean, and Etsy typically reverses the related transaction/processing fees when you refund through Etsy (rules can vary by region/payment method, but this is the standard behavior when processed through Etsy’s system).

Why canceling is usually best (protecting your shop)

• From Etsy’s perspective, if an order stays open and you don’t ship a finished item by the deadline, the buyer can still escalate as “not received,” even though the underlying issue was their inbound shipment. Canceling/refunding prevents that scenario.
• Updating the ship-by date can work only when the buyer is actively sending a replacement and you’re confident you can complete the order within the new timeline.

What to tell the buyer about UPS (so you’re not “owning” the claim)

• Since they bought the label and tendered the package to UPS, they’re the one who usually has to file the carrier claim (and they’ll need any receipt/insurance info).
• You can help by sharing screenshots of the tracking/status that shows “damaged”/“discarded,” but avoid promising outcomes you can’t control.

A simple message you can copy/paste
“Thanks again for the update—UPS is showing your inbound package was damaged in transit and the contents were discarded, so I never received the item I need to complete your custom order. Because I can’t complete the order without your materials, I can either (1) cancel and fully refund you now, and you can reorder once you’re ready to send a replacement item, or (2) if you have a replacement ready to ship immediately, I can extend the ship-by date once and we can continue. Let me know which you prefer.”

How to prevent this next time (quick tweaks)

• Add a line in your Etsy listing description and/or a “How it works” image that says: buyer-supplied materials are shipped at the buyer’s risk, and you strongly recommend insurance + sturdy packaging.
• Consider building your workflow so the buyer purchases the Etsy order only after you receive their item (or create a small “reservation”/custom listing only when the inbound package is in hand). This helps avoid long open-order timelines.

If you tell me whether you’ve already spent money or time on this order (design proofing, materials purchased, etc.), I can suggest the least-risky way to handle that piece too—because on Etsy, partial refunds for work already performed can get tricky unless it’s crystal-clear upfront in your listing and messages.