Alternative Sales Workflows

ERPNext provides a standard three-way-check between Sales Order, Delivery Note, and Sales Invoice that offers robust tracking and control for typical sales transactions. As described in the Three-Way-Check article, this structure ensures proper documentation of what was ordered, what was delivered, and what was billed.

While the standard sales workflows work well for blanket orders, make-to-order arrangements, and supply constrained scenarios, many businesses need additional flexibility to address specialized processes including point-of-sale, drop shipping, combined sale and payment, and trade-ins. This article explores those alternative workflows, focusing on their accounting implications and when they depart from the standard three-way check.

Combining Sale and Payment

In some businesses it is appropriate to combine revenue recognition (Sales Invoice) and the record of payment (Payment Entry). ERPNext makes this easy by checking the "Is Paid" box on the Sales Invoice and completing the fields in the Payments section. This option is appropriate when these two events are effectively simultaneous, like when a customer places an order by phone that includes providing their bank or card information. This option doesn't violate any three-way check principles and can coexist with a Sales Order and Delivery note, if required. Choosing this option bypasses the Payment Ledger, meaning that the payment cannot be reallocated to satisfy a different Sales Invoice.

Combining Sale, Fulfillment and Payment

It is also possible to combine revenue recognition, fulfillment from inventory and payment into a single Sales Invoice. In addition to checking "Is Paid" and payment details being provided, the user can also check "Update Stock" to remove the sold items from inventory.

This isn't an uncommon workflow for retail businesses or wholesale businesses that have walk-in clientele. It differs from ERPNext's Point of Sale and POS Invoice in that it is less flexible and it is typically permissioned for different users.

Drop Shipping

Drop Shipping is a practice where the company receives an order from a customer and then instructs their supplier to ship the requested item(s) directly to the customer. ERPNext's workflow requires some configuration in the Items, as they must be explicitly configured to be able to be drop shipped and for convenience, it is recommended that they have Item Supplier(s) configured as well.

The notable effect of this is that there are no Stock Ledger Entries - neither a Purchase Receipt or a Delivery Note is executed in this process.

Example: A customer orders a specialty fruit basket from Chelsea Fruit Company for $75. Chelsea does not carry this item in inventory but has a supplier that can ship directly to the customer. Chelsea creates a Purchase Order to their supplier for $55, who ships directly to the customer.

When the Purchase Invoice arrives:

And the corresponding Sales Invoice:

The $20 difference represents Chelsea's profit margin without ever having handled the physical product.

Point of Sale

Point of Sale (POS) transactions compress the standard three-way-check into a single operation, reflecting the immediate nature of retail transactions where ordering, delivery, and payment occur simultaneously. In ERPNext, a POS Invoice is a Sales Invoice combined with a Payment Entry.

Example: A customer visits Chelsea Fruit Company's retail store and purchases 5 boxes of mixed fruit for $25 each. The cashier processes this as a POS transaction, which immediately creates a Sales Invoice, reduces inventory, and processes the payment, all in one step.

The transaction generates these accounting entries simultaneously:

A variation of this that can be used with Credit Cards is to satisfy the transaction with a Funds in Transit account.

This account is typically reconciled against overnight deposit(s) from your merchant services provider. If fees are charged daily, this is probably best executed as a Journal Entry, otherwise a Payment Entry of type "Internal Transfer" is appropriate.

For more context on Taxes and Charges please refer to that chapter.

Sales with Samples, Free Items, and Items Replaced Under Warranty

The inclusion of free items in sales transactions creates accounting complexities that extend far beyond the immediate transaction. While businesses frequently use samples, promotional items, and warranty replacements as sales tools, improper accounting can create lasting distortions in inventory valuation, margin calculations, and commission structures. The critical distinction lies not in whether an item is currently free, but in understanding its ultimate business purpose and potential future value. Using zero as a placeholder for unknown costs creates particularly dangerous distortions described in The Zero Value Inventory Problem.

Organizations must distinguish between items that will never generate revenue versus those temporarily offered without charge. Promotional items provided free by suppliers and never intended for sale legitimately carry zero value. These require only quantity tracking for operational control without financial impact. Recording them at any positive value would overstate inventory assets for items that will never generate revenue.

Example: Chelsea Fruit Company receives 1,000 promotional posters from a supplier at no charge to include with purchases during a harvest festival. These posters will never be sold separately.

Purchase Receipt

Sales Invoice (with Update Stock)

This approach maintains operational tracking without distorting financial statements. The zero value is appropriate because the company incurred no cost and expects no future revenue.

Conversely, items temporarily offered free but intended for future sale require full valuation from inception. Receiving such items at zero would understate inventory and corrupt future margin calculations when the promotional period ends.

Example: Chelsea Fruit Co Equipment Division launches a new juice extractor requiring an adapter kit for certain models. During the three-month launch, they include the adapter free with purchases, though it will retail for $50 thereafter.

Sales Invoice During Promotion

This structure preserves the adapter's value in inventory while properly recording the promotional discount. When the promotion ends, the adapter can be sold normally without valuation adjustments.

Warranty replacements require similar care, maintaining full cost value with warranty expense recognized against established reserves. Items replaced under warranty should never be valued at zero, as this would understate warranty costs and distort profitability analysis.

Example: A customer returns a defective juice extractor motor under warranty. Chelsea Equipment ships a replacement motor that costs $85.

Delivery Note (Warranty Replacement)

This approach enables accurate warranty cost tracking while maintaining inventory integrity.

The commission implications deserve particular attention. Sales teams may claim commission on bundled free items' list value, while channel partners might expect compensation based on total package value. Clear policies must establish whether commissions apply to net transaction value after promotional discounts or gross value before adjustments. When free items represent significant value, improperly calculated commissions can eliminate transaction margins entirely.

For serialized warranty replacements and RMA tracking, see Warranties, Replacements and RMAs.

E-Commerce Workflows

ERPNext's various e-commerce integrations introduce both opportunities and challenges. The most typical workflow is to have the integration create Sales Order and/or Sales Invoices as they are received. The company is responsible for shipping the product and creating the corresponding Delivery Note or in the case of Drop Shipping, a Purchase Order.

With the generally high volume of sales associated with Ecommerce, several management issues can come up, notably appropriately calculating nexus for sales tax. This is covered in greater detail in the Taxes and Charges chapter.

Many Ecommerce workflows make use of commission and consignment structures, which are covered in the Commission chapter.

Trade-ins and Trade-in Credits

This streamlined approach separates operational responsibilities while maintaining accurate accounting. Sales teams create a single Sales Invoice containing both the outbound Item sale and a non-inventoriable "Trade-in Credit" line item, allowing immediate transaction completion without inventory valuation concerns. The returns or purchasing team subsequently evaluates the traded item and creates a Stock Entry at its assessed value, which should be backdated to match the Sales Invoice date for proper period matching.

This separation provides operational efficiency while maintaining compliance with accounting standards. Sales personnel complete transactions without awaiting inventory assessment, while the team that regularly tracks incoming valuation appropriately aligns with lower of cost or market principles. The approach creates clear accountability and a transparent audit trail through two distinct documents that delineate commercial terms from inventory reality. The timing flexibility proves particularly valuable during high-volume periods or when traded items require technical evaluation.

Example: Customer trades item for $500 credit against $1,500 new purchase; traded item assessed at $450:

Sales Invoice (SINV-001)

Stock Entry - Material Receipt (STE-001)

The $50 valuation adjustment in Trade-in Expense represents the cost of offering competitive trade-in values—a measurable sales incentive.