Managing inventory efficiently is one of the most vital responsibilities for wholesalers, distributors, and B2B businesses. Sooner or later, every supply chain runs into a situation where demand outpaces available warehouse stock. When this happens, products enter a status known as a backorder.
While having products on backorder indicates high demand for your merchandise, poor backorder management can frustrate customers, increase order cancellation rates, and harm your brand reputation. In this guide, we break down what a backorder is, why it occurs, how it differs from an “out-of-stock” event, and how you can manage backorders seamlessly.
What Does "Backorder" Mean in Inventory Management?
A backorder is an order for an item that is currently out of stock, but is expected to be replenished by the manufacturer or supplier by a specific date. Instead of turning the customer away or canceling the transaction, the seller accepts the order with the agreement that the product will be fulfilled as soon as new inventory arrives at the warehouse.
Placing an item on backorder allows businesses to capture revenue upfront while signaling to the buyer that the item is actively in production or transit.
Backorder vs. Out of Stock: What is the Difference?
While both terms mean that a product is not sitting on your warehouse shelf right now, they represent two fundamentally different inventory states with distinct commercial outcomes.
When a product is out of stock, there is no guaranteed fulfillment date, and the seller typically disables orders for that item. When an item is on backorder, the business maintains an active purchase order with its supplier, possesses an Estimated Time of Arrival (ETA), and continues accepting customer orders.
Why Do Backorders Happen?
Backorders occur for various reasons, reflecting fluctuations in demand and the effectiveness of inventory management. High customer demand, supply chain issues, and inaccurate forecasting are some of the primary factors contributing to backorders. Understanding these reasons is crucial for businesses to minimize backorders and maintain customer satisfaction. Backorders contribute to the company’s backlog, affecting inventory management and accounting practices.
We’ll explore how demand exceeding supply, supply chain disruptions, and inaccurate forecasting lead to backorders. By understanding these causes, businesses can implement strategies to mitigate their impact and ensure smoother operations.
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3 Main Causes of Backorders in the Supply Chain
1. Unpredictable Demand Spikes
2. Supplier Delays and Manufacturing Bottlenecks
3. Poor Inventory Visibility & Inaccurate Forecasting
Backorder vs. Pre-order: Understanding the Difference
It is easy to confuse a backorder with a pre-order, as both require the customer to purchase an item that is not currently ready to ship. However, they serve entirely different purposes in retail and supply chain management.
While a backorder deals with replenishing an existing, established product, a pre-order is used to generate excitement and secure sales for a brand-new item before its official release date.
| Feature | Backorder | Pre-order |
|---|---|---|
| Product Lifecycle | Existing product that has temporarily sold out. | New product that has not yet been officially released. |
| Main Purpose | To avoid losing sales while waiting for inventory replenishment. | To build hype, guarantee early access, and forecast initial demand. |
| Predictability | Often unexpected, resulting from demand spikes or supplier delays. | Highly planned as part of a strategic marketing campaign. |
| Delivery Timeline | Variable, depending on when the supplier restocks the warehouse. | Fixed, tied directly to the official product launch date. |
Advantages and Disadvantages of Allowing Backorders
4 Proven Best Practices to Manage Backorders
If your business accepts backorders, executing them flawlessly is mandatory for retaining long-term client trust.
- Be Transparent Upfront: Display clear backorder notices on your order forms or B2B portal before checkout, including a realistic Estimated Delivery Date (ETA).
- Automate Reorder Points: Set dynamic minimum threshold alerts in your inventory management software to auto-generate purchase orders before stock hits zero.
- Keep Buyers Updated: Proactively communicate status changes via automated emails or SMS if your supplier reports production delays.
- Prioritize Backorder Fulfillment: Configure your warehouse operations to automatically assign incoming shipments to open backorders first (First-In, First-Out fulfillment).
How Automation Solves Backorder Challenges
Frequently Asked Questions
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Is a backorder the same as a pre-order?
No. A backorder applies to an existing product that is temporarily out of stock. A pre-order applies to a brand-new product that has not yet been officially released for sale.
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How long does a backorder usually take to ship?
Fulfillment times vary based on the supplier's lead time and shipping distance. Typical backorder fulfillment ranges from a few business days to several weeks.
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Should I charge customers immediately for a backorder?
In B2B commerce, it is common to pre-authorize payment or invoice upon fulfillment, depending on the credit terms agreed upon with your buyer. In direct-to-consumer sales, payment is typically processed at checkout to secure the backorder reservation.
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Can backorders be canceled by the customer?
Yes. Because backorders involve waiting periods beyond standard delivery windows, customers usually retain the right to cancel their backorder before the item enters shipment.
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