What is Backorder?

A backorder occurs when a customer places an order for a product that is temporarily out of stock but is expected to be replenished by the seller at a future date. Rather than canceling the transaction or turning the customer away, the business accepts the order with the understanding that fulfillment will be delayed until new inventory arrives. Backorders are a common reality in retail and wholesale commerce, arising from demand spikes, supply chain disruptions, production delays, or forecasting inaccuracies. How a business handles backorders has a direct impact on customer satisfaction, revenue retention, and operational efficiency.

Why It Matters

Backorders sit at the crossroads of customer expectations and supply chain realities. When managed well, they allow businesses to capture revenue that would otherwise be lost to stockouts. A customer who is willing to wait for a backordered item is far more valuable than one who abandons their cart and purchases from a competitor. In industries where products have strong brand loyalty or limited substitutes — such as specialty electronics, luxury goods, or custom-manufactured items — backorder programs can preserve significant revenue during supply shortages.

However, backorders also carry risk. Every backordered item represents a promise to the customer, and broken promises erode trust quickly. If estimated delivery dates slip repeatedly, if communication about delays is inadequate, or if the product ultimately cannot be fulfilled, the negative impact on customer loyalty can outweigh the revenue captured. Chargebacks, negative reviews, and customer service escalations are common consequences of poorly managed backorders.

From a financial perspective, backorders affect cash flow planning and inventory valuation. Orders accepted but not yet fulfilled represent liabilities and unfulfilled commitments. Businesses must track backordered quantities separately from available inventory to maintain accurate financial reporting and demand planning. The carrying cost of managing backorder queues — including customer communication, order modifications, and potential cancellations — adds operational overhead that must be factored into the cost-benefit analysis.

Backorders also provide valuable demand signals. A product that consistently generates backorders indicates that demand exceeds supply, which should inform purchasing decisions, safety stock calculations, and supplier negotiations. Ignoring these signals leads to chronic understocking and missed revenue opportunities.

How It Works

The backorder process involves several coordinated steps that span sales, inventory management, purchasing, and customer communication:

• Detection and Acceptance: When a customer attempts to order an out-of-stock item, the system checks whether the product is eligible for backordering based on business rules. Not all products should be backordered — discontinued items, seasonal products past their selling window, or items with uncertain replenishment timelines may be better handled by showing "out of stock" and offering notification when the item returns. If the product qualifies, the order is accepted with a backordered status and an estimated fulfillment date.
• Customer Communication: Transparent communication is essential. The customer should be informed at the time of purchase that the item is backordered, given an estimated ship date, and offered the option to cancel at any time. Automated email notifications should provide updates when the estimated date changes, when the item is received into inventory, and when the order ships.
• Inventory Reservation: Backordered quantities are tracked in the inventory system as committed but unfulfilled. This ensures that when new stock arrives, backordered units are allocated to waiting customers before being made available for new orders. The reservation system must handle first-in-first-out queuing so that customers who ordered first are fulfilled first.
• Supplier Coordination: The purchasing team monitors incoming purchase orders and production schedules to validate estimated backorder fulfillment dates. If a supplier communicates a delay, the backorder timeline must be updated and affected customers notified promptly.
• Fulfillment on Receipt: When replenishment inventory arrives at the warehouse, the system automatically allocates units to backorders in queue order. These orders then enter the standard pick-pack-ship workflow and are fulfilled with priority handling to minimize additional delay.

Strategies for Reducing Backorders

While some backorders are unavoidable, businesses should aim to minimize their frequency through proactive inventory management practices:

• Accurate demand forecasting: Using historical sales data, seasonality patterns, promotional calendars, and market trends to predict demand more accurately reduces the gap between supply and demand that creates backorders.
• Appropriate safety stock levels: Maintaining buffer inventory for high-velocity and high-variability items absorbs demand fluctuations without triggering stockouts. Safety stock calculations should account for both demand variability and supplier lead time variability.
• Reliable reorder points: Setting reorder points that trigger replenishment orders before stock reaches zero — factoring in lead time and demand rate — prevents the inventory gaps that generate backorders.
• Supplier diversification: Relying on a single supplier for critical products concentrates risk. Qualifying secondary suppliers provides a fallback when primary suppliers experience disruptions.
• Real-time inventory visibility: Accurate, real-time stock data across all locations and channels enables faster detection of declining inventory levels and earlier intervention through expedited orders or inventory reallocation.

How Nventory Helps

Nventory provides comprehensive backorder management that keeps customers informed and operations organized. When inventory reaches zero, Nventory can automatically enable backordering for eligible products, display estimated availability dates on your storefront, and queue orders for priority fulfillment when stock arrives. Real-time inventory sync across all channels ensures that backordered quantities are tracked accurately and that incoming replenishment is allocated to waiting orders first. Automated customer notifications keep buyers informed throughout the process, reducing support inquiries and cancellations. Combined with Nventory's demand forecasting and reorder point tools, you can minimize backorder occurrences while maximizing revenue capture when they do happen.