This guide covers how to set up and process a drop shipment in Business Central, from the sales order to the final vendor invoice.
What Is a Drop Shipment and When Do You Use It?
In a standard sales flow, you receive goods from a vendor and then ship them to the customer from your own warehouse. A drop shipment removes that step. Instead, the vendor ships directly to the customer on your behalf. As a result, your company never physically handles the item.
This model works well in several situations. For example, you may sell products you do not stock regularly. Or you may want to cut handling costs. In other cases, a customer needs faster delivery than your warehouse can manage. Drop shipments also reduce the capital tied up in inventory. Instead of buying stock speculatively, you buy in direct response to a confirmed customer order.
From a Business Central perspective, the drop shipment process creates a tight link between the Sales Order (SO) and the Purchase Order (PO). That link drives posting behaviour, shipping defaults, and cost assignment. Therefore, understanding why that link exists makes the whole workflow easier to follow.
Setting Up the Drop Shipment Sales Order
The process always starts with a sales order. Create a new SO as you normally would: find the customer, add the item, and enter the quantity. The item itself needs no special setup. However, the difference from a normal SO appears on the sales line.
Two fields control drop shipment behaviour on a line: Purchasing Code and Drop Ship. The Purchasing Code field has two options – Drop Shipment or Special Order. Select Drop Shipment and BC then ticks the Drop Ship checkbox on the line automatically.
Adding Drop Shipment Fields to the Sales Line
By default, neither field appears on the standard sales line view. Therefore, you need to add them using Business Central’s built-in personalisation feature. Open the personalisation panel, find those fields, and drag them onto the line. This is standard BC functionality and takes only a minute to set up. Once done, the fields appear on every SO going forward.
After you configure the line correctly, release the SO. Releasing signals that the order is ready for the purchase step. Also, note that you cannot process the drop ship purchase until the SO is released.
Linking the Drop Shipment to a Purchase Order
With the SO released, go to Purchase Orders and create a new PO. Select the vendor who will ship the item directly to your customer. Do not type item lines onto the PO directly. Instead, the items must come from the SO to keep the link intact.
Pointing the PO to the Customer Address
In the Ship and Payment section of the PO header, find the Ship-to field. By default, it shows your own address. For a drop shipment, change this to Customer Address. A Customer field then appears below it. Enter the customer number from your SO.
If the SO has a specific Ship-to Address for that customer, you can select it from the list. If there is no special address, BC uses the customer’s default. Either way, the vendor gets the correct delivery address when they print or share the PO.
Pulling the Drop Shipment Sales Order Lines
Next, go to Actions > Drop Shipment > Get Sales Orders. BC shows all open SOs for the selected customer. If you are unsure which SO to pick, highlight a line and choose Show Document to check it first. Then select the correct SO and click OK.
BC then pulls the item, quantity, and drop ship flag from the SO onto the PO line. The checkbox on the PO line confirms the link is active. In addition, if the original SO had multiple lines but only some were flagged as drop ship, only those lines come through. Non-drop-ship lines stay on the SO and are fulfilled from your own inventory as normal.
Finally, add the unit price you agreed with the vendor. From the PO, you can also navigate back to the linked SO at any time via the Drop Shipment menu on the line.
Posting the Drop Shipment: Receipt, Shipment, and Invoicing
The SO and PO share a posting lifecycle. In particular, the sequence in which you post them matters.
Step 1 – Post the PO as Received
When the vendor confirms they have sent the item to your customer, open the PO and post it as received. This feels counterintuitive at first because you are not physically receiving anything. However, BC uses this action to trigger two things at once. First, it records the quantity received on the PO. Second, it also posts the shipment quantity on the linked SO. As a result, both updates happen in a single posting action.
Step 2 – Invoice the Sales Order Before the PO
After posting the receipt, open the SO and invoice it. This creates the customer sales invoice. You must do this before you invoice the PO. The reason is cost integrity – the cost from the PO needs to flow into the sale before BC can close the purchase side. If you try to invoice the PO first, BC returns an error and blocks the action. So always invoice the SO first.
Step 3 – Invoice the Purchase Order
With the SO invoiced, return to the PO and post the vendor invoice. Enter the amount from the vendor’s bill and post. The loop is then complete. Consequently, the vendor has been paid, the customer has been invoiced, and the item has moved from vendor to customer without ever touching your warehouse.
Using the Requisition Worksheet for Drop Shipments
For businesses with many drop shipments, creating POs one by one is slow. Fortunately, the Requisition Worksheet provides a faster alternative.
In the worksheet, go to Drop Shipment > Get Sales Orders. BC then prompts for filters. You can narrow by customer, date, or document number. However, it is usually easiest to leave the filters blank. That way, BC pulls every open drop ship SO that does not yet have a linked PO. Click OK and the system adds one line per open order to the worksheet.
Each line shows the item, quantity, and the SO it came from. For example, you can click through to review any SO from within the worksheet before you commit. When you are satisfied, select the lines and choose Carry Out Action Message. BC then creates individual POs for each line. Each PO is already linked to its SO, with the customer address and item details filled in.
The one-to-one link between SO and PO is always kept. In other words, the system does not merge lines across different orders or customers. After the action, the lines disappear from the worksheet and the new POs appear in Purchase Orders, ready to send.
Wrapping Up: Why Drop Shipment Works Better with a Clear Process
Drop shipment in Business Central gives you a clean, auditable path for vendor-direct fulfilment. The SO and PO stay linked throughout – sharing shipping details, quantity updates, and cost data automatically.
For occasional drop ships, create the PO manually and use Get Sales Orders to pull the correct lines. For high volumes, however, the Requisition Worksheet lets your planning team create all the POs in one pass. Either way, the setup is straightforward. After the initial configuration, the system does the coordination work for you.
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