The quick answer
Open the purchase order and click Authorize Return. Cut the vendor return authorization down to the units going back and save it. Approve it at Transactions > Purchases > Approve Vendor Returns, ship it at Transactions > Purchases > Ship Vendor Returns (that item fulfillment is what takes the units out of stock), and credit it at Transactions > Payables > Credit Vendor Returns, which opens a bill credit for the returned lines. Once you save the bill credit, the vendor balance drops by the return amount, even before you apply it to a bill.
The screenshots show sample data. Person and operating-company names are fictional. Use your own records and values when following the steps.
Before you start
In this example a hardware distributor received and billed 80 Brass Cabinet Hinges on purchase order PO1187 from Pinecrest Fastener Supply. Twelve came in with a bad finish, and the supplier agreed to take them back. The return should lower both the hinges on hand and what the distributor owes Pinecrest.
The example has no tax, freight, or landed cost, and the hinge doesn't use lots, serial numbers, or bins. The role is Administrator. Other roles need permission to create and approve vendor return authorizations, enter item fulfillments, and enter bill credits.
Vendor returns need two features. Go to Setup > Company > Enable Features and open the Transactions subtab. Under Basic Features, check Vendor Return Authorizations.
Further down the same subtab, under Shipping & Receiving, check Advanced Shipping. That's what lets a return go back to the vendor on an item fulfillment. If you change either box, click Save.
01. Check stock and the vendor balance
Write down the starting numbers so you can check the result later. Open the item Brass Cabinet Hinge. On the Purchasing/Inventory subtab, the Locations list shows Quantity On Hand 80 at Main Warehouse.
Then open the vendor Pinecrest Fastener Supply. On the Financial subtab, Balance is 1,720.00. That's the open bill for PO1187.
02. Authorize the return from the PO
Open purchase order PO1187. It's Fully Billed. On the Items subtab, Brass Cabinet Hinge shows Quantity 80, Received 80, and Billed 80, and Soft-Close Drawer Slide shows 40 received. Click Authorize Return.
The button needs received quantities on the order, because you can't return stock that never arrived. Custom forms, workflows, or role permissions can also hide it.
A new Vendor Return Authorization opens, filled in from the order: Vendor Pinecrest Fastener Supply, Created From Purchase Order #PO1187, Status Pending Approval, and both order lines, for an Amount of 1,720.00.
You can also start from Transactions > Purchases > Enter Vendor Return Authorizations and pick the vendor and items yourself. Starting from the PO fills in the vendor, location, items, rates, and Created From, and keeps the return tied to the original purchase.
03. Trim the return and save it
The authorization should match what's physically going back. On the Items subtab, select the Soft-Close Drawer Slide line and click Remove, since none of those are going back. Then change the Brass Cabinet Hinge Quantity from 80 to 12.
The line Amount becomes 150.00 (12 × 12.50), and the authorization's Amount follows it. With tax or freight on the order, that total would include those too.
Click Save. VRMA42 is saved for 150.00 with status Pending Approval.
04. Approve the return
Go to Transactions > Purchases > Approve Vendor Returns. VRMA42 is listed for Pinecrest Fastener Supply with a Return Total of 150.00. Check its box and click Submit. The authorization moves to Pending Return and drops off this list.
If your account doesn't require approval for vendor returns, new authorizations skip this status and you can go straight to shipping.
05. Ship the units back
Go to Transactions > Purchases > Ship Vendor Returns. VRMA42 is now listed as ready to ship. Check Return and click Submit.
A new Item Fulfillment opens with Created From Vendor Return Authorization #VRMA42. On the Items subtab, Fulfill is checked for Brass Cabinet Hinge at Main Warehouse. On Hand is 80, the stock at the location before this shipment. Remaining is 12, the quantity on the authorization not yet shipped, and Quantity is 12.
Click Save to record IF5127. The item fulfillment is the transaction that takes the 12 hinges out of stock, not the authorization and not the credit. The saved line shows On Hand 68, and VRMA42 moves to Pending Credit.
If the item used lots, serial numbers, bins, or inventory statuses, you'd enter that detail on the fulfillment line, and the units would need to be available at the location.
06. Credit the return
Go to Transactions > Payables > Credit Vendor Returns. VRMA42 is listed with a Return Total of 150.00. Check Credit/Refund and click Submit.
A new Bill Credit opens with Created From Vendor Return Authorization #VRMA42, Reference No. VRMA42, and Vendor Pinecrest Fastener Supply. The Items subtab carries exactly what went back: 12 Brass Cabinet Hinge at 12.50, for 150.00. Unapplied is 150.00. Check the date and posting period, then click Save.
The saved bill credit shows Amount 150.00 and Created From VRMA42.
07. Confirm stock and the balance
Open VRMA42 again, for example from the bill credit's Created From link. Its status is Credited.
On its Related Records subtab, Fulfillments & Credits lists both halves of the return: item fulfillment IF5127 (Shipped) and the bill credit for 150.00.
Open Brass Cabinet Hinge again. Main Warehouse Quantity On Hand is 68 (80 − 12).
Check the result
- VRMA42 is Credited, and Related Records lists IF5127 and the bill credit.
- Brass Cabinet Hinge shows Quantity On Hand 68 at Main Warehouse, down from 80.
- Pinecrest Fastener Supply shows Balance 1,570.00 on the Financial subtab, down from 1,720.00.
The bill credit is still unapplied. It already lowers the balance, and it stays available to apply against the open PO1187 bill, from the credit's Apply subtab or in Pay Bills. That's a separate step this example doesn't do.
Common questions
Which transaction takes the returned items out of inventory?
The item fulfillment you create from Ship Vendor Returns. Here, saving IF5127 dropped Main Warehouse from 80 hinges on hand to 68. The vendor return authorization and the bill credit don't change the quantity on hand.
Does an unapplied bill credit lower the vendor balance?
Yes. Saving the 150.00 bill credit took Pinecrest Fastener Supply's balance from 1,720.00 to 1,570.00, even though it wasn't applied to anything. To use it against the open bill, apply it from the credit's Apply subtab or select it along with the bill in Pay Bills.
Can I return only part of a purchase order?
Yes. Click Authorize Return on the purchase order, then remove the lines that aren't going back and lower the quantities on the ones that are. In this example the order had 80 hinges and 40 drawer slides, and the return was cut down to 12 hinges for 150.00.
What do the vendor return statuses mean?
Pending Approval means the authorization is saved but not approved yet. Pending Return means it's approved and waiting to ship. After the item fulfillment is saved it becomes Pending Credit, and after the bill credit is saved it's Credited. Accounts that don't require approval skip Pending Approval.
What's the difference between Ship Vendor Returns and Credit Vendor Returns?
Ship Vendor Returns creates the item fulfillment that records the units leaving your warehouse and lowers on-hand stock. Credit Vendor Returns creates the bill credit that lowers what you owe the vendor. They're separate steps, so you can ship the goods now and record the credit when the vendor confirms it.
Why don't I see the Authorize Return button on my purchase order?
It shows up only when the order has received quantities, since you can't send back stock you never got. Check that the Vendor Return Authorizations feature is on and that your role can create vendor return authorizations. A custom form or workflow can also hide the button.