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Documentation Index

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Drop-shipping is a fulfillment model where inventory is ordered from a vendor and shipped directly to your customer. Arcus automates the purchase order creation and tracks the cascade of events from order to shipment.

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How Drop-Shipping Works in Arcus

When you create a sales order with drop-ship line items:
  1. You add a product that is marked as drop-ship on the vendor account
  2. Arcus automatically creates a linked purchase order to the vendor
  3. The vendor ships directly to your customer
  4. You record the shipment in Arcus to complete the sales order
  5. Accounting records the cost and revenue simultaneously

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Prerequisites

  • Product is set up in your product catalog
  • Vendor account exists and is linked as the drop-ship supplier for this product
  • The product has a drop-ship flag set to enabled on the vendor record
  • Customer account is active

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Mark a Product for Drop-Ship

Before creating a sales order, verify the product is configured for drop-ship:
  1. Go to Products.
  2. Find the product you want to drop-ship.
  3. Click to open the product detail.
  4. Go to the Vendors tab.
  5. Find the vendor who will supply this drop-ship item.
  6. Check the “Drop-Ship” checkbox next to that vendor.
  7. Save.
Product vendor detail with drop-ship checkbox
Now when you create a sales order with this product and this vendor, the auto-PO will be created.

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Create a Sales Order with Drop-Ship Items

  1. Go to Orders > Sales Orders.
  2. Click Create Order.
  3. Select the customer.
  4. Add a line item with a drop-ship product.
  5. Enter the quantity and any applicable pricing or discounts.
  6. Save the sales order.
Sales order showing drop-ship line item designation

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Auto-Generated Purchase Order

When you save the sales order, Arcus automatically creates a purchase order to the drop-ship vendor:
  • Linked to the sales order - The PO is tied to your SO for easy tracking
  • Vendor shipping address - The PO requests shipment to your customer, not to you
  • Quantity and price - Matches the SO line item
  • Auto status - The PO is created in “Open” status, ready to send or already submitted to the vendor
You can view the linked PO by clicking PO or View PO in the sales order detail.
Sales order showing linked purchase order button

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Vendor Responsibility

The vendor is responsible for:
  • Receiving and fulfilling the purchase order
  • Shipping the items directly to your customer address
  • Providing tracking information
You should communicate the customer shipping address and any special instructions to the vendor via email or your typical vendor communication channel.

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Record the Shipment

Once the vendor has shipped the items:
  1. Go to Orders > Sales Orders.
  2. Find your sales order.
  3. Scroll to the drop-ship line item.
  4. Click Mark as Shipped or Record Shipment.
  5. Optionally, enter the vendor’s tracking number.
  6. Click Confirm.
Arcus records the shipment, updates the SO status to “Shipped”, and generates the shipment notification to the customer.
Sales order shipment recording with tracking number field

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Accounting for Drop-Ship

When a drop-ship SO is confirmed:
  • Revenue is recorded - The sales order creates an AR entry and revenue JE
  • Cost of goods sold is recorded - Inventory is reduced at the vendor’s cost
  • Profit is calculated - Revenue minus your cost from the vendor
Example: Customer orders a 500itemthatyoubuyfromthevendorfor500 item that you buy from the vendor for 300.
  • Sales order creates $500 revenue JE
  • Inventory purchase creates $300 cost JE
  • Gross profit on that sale is $200

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What Happens if the Customer Cancels

If the customer cancels a drop-ship SO:
  1. You can cancel the linked PO if the vendor has not shipped yet
  2. If the vendor has already shipped, you must receive the items and manage them as returns
  3. The revenue JE is reversed in accounting
Cancellation can create orphan POs If you cancel a drop-ship SO after the vendor has shipped, you may receive inventory you did not plan to keep. Contact the vendor to arrange return or redirect the shipment to your warehouse. This is a known limitation being addressed in a future release.

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Reconciling Drop-Ship Costs

At month-end, verify that all drop-ship items match:
  • SO quantity to PO quantity - Should be identical
  • PO cost to vendor invoice - Should match when the bill arrives
  • Shipping and handling - Include in the cost JE if the vendor bills shipping separately
If the vendor’s invoice differs from the auto-PO cost, adjust the PO or create a cost variance JE with accounting approval.

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Troubleshooting

“No auto-PO was created” - Verify the product has the drop-ship flag set to true on the vendor record. Check that the vendor is marked as the drop-ship supplier. If needed, manually create a PO for this order. “Customer received items late” - Reach out to the vendor to confirm shipment status. You can view the vendor’s tracking number in the sales order. Share that with the customer for visibility. “Vendor sent wrong SKU to customer” - Contact the vendor immediately to arrange a return or replacement. Record the shipment back to the vendor as a vendor return. Create a replacement SO and PO to resend the correct item. “Cost variance between PO and vendor bill” - When the vendor invoice arrives, it may not match the auto-PO cost if there was a discount or change. Work with accounting to approve the variance and adjust the cost JE.

Create and Manage Sales Orders

How to set up sales orders and add line items.

Create and Manage Purchase Orders

How purchase orders work and how to manage them.

Fulfillment

How to manage fulfillment for all order types.