A drop shipment is an arrangement where your vendor ships goods directly to your customer. Your company handles the transaction, selling to the customer and buying from the vendor, but the items never physically enter your warehouse.
Business Central supports this by linking a sales order line to a purchase order, so the posting flow reflects what actually happens.
Enable Drop Shipment on an Item
Before using drop shipments, the item should be flagged to indicate it can be drop shipped.
- Open the Item Card for the relevant item.
- Navigate to the Purchasing tab (or Replenishment in some versions).
- Set the Default Vendor No. if the item always comes from the same vendor.
- Check the Drop Shipment field.
This setting is informational in part, it does not prevent other purchasing methods, but it helps when creating purchase orders from sales.
Create the Sales Order with a Drop Shipment Line
- Search for Sales Orders and select New.
- Set the Customer and other header fields as usual.
- In the Lines section, add the item.
- On the sales line, set the Purchasing Code field to a code that has Drop Shipment enabled. If you do not have a purchasing code set up, see below.
Setting up a Purchasing Code for Drop Shipment:
- Search for Purchasing Codes.
- Select New and enter a Code and Description.
- Check the Drop Shipment field on the purchasing code.
Return to the sales line and select this purchasing code. The line is now marked as a drop shipment.
Create the Purchase Order Using Get Drop Shipment Lines
Once the sales order is ready, create the purchase order that is linked to it.
- Search for Purchase Orders and select New.
- Set the Vendor who will fulfill the drop shipment.
- On the purchase order, go to the Lines section and select Drop Shipment → Get Sales Orders.
- A list of sales orders with open drop shipment lines appears. Select the sales order line you want to fulfill.
BC copies the item and quantity from the sales line to the purchase order line and creates a link between the two documents.
- Confirm the Direct Unit Cost and other purchasing details on the purchase line.
- Note the Ship-to Address on the purchase order header, BC automatically sets this to the customer’s delivery address from the sales order.
Post the Receipt and Invoice
Because the goods go directly to the customer, the posting sequence is specific:
- On the purchase order, post the receipt (Post → Receive). This records that the vendor shipped the goods. BC also records the shipment on the linked sales order.
- On the sales order, post the invoice (Post → Invoice) to bill the customer.
- On the purchase order, post the invoice (Post → Invoice) to record what you owe the vendor.
Alternatively, post the purchase receipt and invoice together (Receive and Invoice), then post the sales invoice.
BC does not create inventory entries for the item when posting a drop shipment receipt, since the goods passed directly to the customer without entering your warehouse.
What BC Records
| Document | What it records |
|---|---|
| Purchase Receipt | Vendor shipped goods to customer |
| Sales Shipment | Customer received goods (generated automatically) |
| Purchase Invoice | Amount owed to vendor |
| Sales Invoice | Amount billed to customer |
For more on the purchase order process, see How to Set Up and Use Purchase Orders in Business Central.