How to Handle Drop Shipments in QuickBooks Desktop

Before you start

• We found no Intuit help article for QuickBooks Desktop that describes a drop-ship setting or transaction. You record a drop shipment with forms you already use: a sales order, a purchase order, the supplier's bill and an invoice.
• Sales orders are only in Premier and Enterprise. Intuit says purchase orders are in Pro, Premier and Enterprise.
• Intuit describes linking sales order lines to purchase orders for QuickBooks Desktop Enterprise 24.0 release R9.
• Agree with your accountant how drop-shipped products are set up as items. Intuit describes a Non-inventory Part as a product you buy and sell but don't stock or track as inventory.

Step 1: Set up the drop-shipped item

1. 1Go to Lists > Item List, then select Item > New.
2. 2Choose Non-inventory Part.
3. 3Enter the Item Name/Number. Intuit allows up to 31 characters.
4. 4Select This item is purchased for and sold to a specific customer:job. Purchase and sales details appear.
5. 5Fill in the purchase details, such as Description on Purchase Transactions, Cost and Preferred Vendor.
6. 6Fill in the sales details, such as Description on Sales Transactions, Sales Price and Tax Code. Ask your accountant which accounts to choose.
7. 7Save the item.

If the product is an Inventory Part because you also stock it, receiving it against a purchase order adds it to quantity on hand. That happens even though the goods went straight to the customer. Agree how to handle this with your accountant before your first drop shipment.

Step 2: Enter the customer's sales order

1. 1Go to Customers > Create Sales Orders.
2. 2Choose the customer in Customer:Job and fill in the rest of the form.
3. 3Add the drop-shipped items and quantities.
4. 4Select Save.

Step 3: Create the purchase order to the supplier

Enterprise 24.0 release R9

1. 1Go to Edit > Preferences > Items & Inventory > Company Preferences.
2. 2Select Link and track sales order line items with purchase orders, then OK. QuickBooks closes open windows to apply it.
3. 3Open the sales order and select Create Purchase Order.
4. 4Choose to order all allowed items, or select the lines to order. Select OK.
5. 5QuickBooks creates the purchase order with its own number. Back on the sales order, a new Linked PO column links each line to its purchase order.

Other editions

Create the purchase order to the supplier yourself, with the same items and quantities as the sales order. Note the sales order number on it so the two can be matched later. Our guide to create purchase orders from the reorder report walks through the purchase order form.

Either way, the supplier needs the customer's delivery address with the purchase order. Intuit lists purchase orders among the forms you can customize. See how to customize an invoice template.

Buying one item from two suppliers? Intuit suggests putting each supplier's quantity on its own sales order line, each linked to its own purchase order.

Step 4: Record the supplier's bill

1. 1When the bill arrives, open the Receive Inventory dropdown and select Receive Inventory with Bill.
2. 2Choose the vendor. Select Yes when QuickBooks offers to receive against a purchase order, choose it and select OK.
3. 3Review the bill. Fields filled in on the purchase order carry over, except the memo.
4. 4On the Items tab, assign each line to the customer in the Customer:Job column, so job reports show the cost.
5. 5Select Save & Close.

Pay the bill later from Vendors > Pay Bills. Both steps are covered in how to enter and pay bills.

Step 5: Invoice the customer

1. 1When the supplier confirms the goods have shipped, open the sales order and select Create Invoice.
2. 2Choose Create invoice for all of the sales order(s), or Create invoice for selected items if only part shipped.
3. 3For a partial shipment, enter what shipped in the To Invoice column, and 0 on lines still to come.
4. 4Select Save & Close.

The full steps are in how to turn a sales order into an invoice.

Step 6 (Enterprise): Track open drop shipments

• Reports > Sales > Sales Orders Linked to Purchase Orders shows each sales order line's purchase order and the quantity received.
• Customize the report to show or hide columns, or filter on a column.
• To print the linked purchase order on sales orders, open one and select Formatting > Customize Data Layout. Select Linked PO under Columns.

Things that trip people up

• Receiving an Inventory Part changes quantity on hand, even when the goods never reached your building.
• Turning on purchase order linking closes every open window. Save your work first.
• Intuit describes sales order to purchase order links only for Enterprise 24.0 release R9. In other editions, note the sales order number on the purchase order yourself.
• Intuit says a price change only affects new transactions, so open sales orders keep the old price.

Where QuickBooks Desktop leaves the work to you

• Someone has to create a purchase order for every drop-shipped order and send the customer's address to the supplier.
• Someone has to get the supplier's shipping confirmation before invoicing the customer.
• When the customer asks where the order is, someone has to find the purchase order and ask the supplier.
• The supplier's bill has to be matched to the purchase order and to the customer.

How Logistify helps

Logistify doesn't create purchase orders or arrange shipping. The Sales Order Service enters customer orders that arrive by email, PDF, WhatsApp, SMS, voicemail or paper into QuickBooks Desktop as sales orders. A person reviews the exceptions. The Procurement Service follows up with suppliers on open purchase orders, including the ones behind your drop shipments.

For the supplier side, see how to follow up on late supplier orders.