How do you handle returns when you're drop-shipping and the goods were sent directly to the customer from the supplier?
Drop-ship returns are processed as customer returns. In Set Up SO Options, you can also select if drop-ship items can be returned through the Customer Returns process.
Select this check box to allow customers to return drop ship items that are linked to sales orders. Clear this check box if you do not want to allow customers to return drop ship items.
If Drop Ship Returns are allowed, the drop-ship items are returned to the distributor’s inventory and not returned to the vendor. However If you need to correct this and still need to send the item back to the vendor you will need to do an IM Inventory Transaction/Purchase Return.
And you will also need to create an AP Debit Memo to apply it to open AP voucher that was created with the initial drop shipment. Remember that AP Debit Memo cannot have inventory item selected so you will need to come up with a non-inventory item or a description only line to reference the returned item. If you create a debit memo in PO/Process Receipt of Invoice you will be able to link it to a Purchase Order that was generated from a drop ship Sales Order.
If Drop Ship Returns are not allowed, such returns are credited directly in the Accounts Receivable module by entering a credit memo. And again you will need to create an AP Debit Memo to apply it to open AP voucher that was generated from the original Purchase Order.