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Dear Diksha Kanwar,
Good day! Thanks for posting in Microsoft Community.
From your description, it seems that you are trying to default SharePoint location in Document management parameters for F&O in Dynamic 365, however, getting error "Value cannot be null. Parameter name: externalId".
If my understanding is right, we’d also want to help you directly, since our category focus on general troubleshooting and built-in features in SharePoint Online, the question you mentioned is related to Dynamic 365, to make sure you get professional help, we’d suggest you go to Microsoft Dynamics Community 365 Forums to post a new thread, which is specific channel to handle such situation. The engineers in related team will focus on your specific scenario and provide specific suggestions. They also have enough environment to help you test it.
Your understanding and patience will be highly appreciated. I hope that you are keeping safe and well!
Sincerely,
Rhoda | Microsoft Community Moderator