A backorder is a sales order that reserves out-of-stock inventory for customers awaiting replenishment. That gap between order and delivery can strain customer trust, but with the right approach a back order becomes an opportunity to strengthen relationships and tighten operations.
Backorders matter because inventory shortages are expensive. According to IHL Group, global out-of-stocks and overstocks cost retailers $1.73 trillion annually, with supply chain disruption alone accounting for $301 billion of those losses. Fishbowl’s inventory management software helps you stay ahead of backorders by giving you real-time visibility, improving order accuracy, and helping you manage lead times.
Key Takeaways
- A backorder lets you capture revenue from customers willing to wait for temporarily out-of-stock items rather than losing the sale entirely.
- Common backorder causes include supplier delays, demand spikes, human error, and poor warehouse organization.
- According to Fishbowl customer data, users reduce backorders by 17% on average while cutting stockouts by 22%.
- The best way to prevent backorders is to set accurate reorder points, maintain safety stock, and monitor inventory in real time.
What is a back order?
A backorder happens when a customer places an order for an item that isn’t available right away, often due to a stock shortage or supply chain hiccup. The customer still wants the product, and you still plan to fulfill that order. Backorder management bridges that gap between order placement and when the product becomes available again.
Backorders are common in industries with complex supply chains. Poor backorder management leads to missed deadlines, frustrated customers, and strained relationships with suppliers. Stockouts (when inventory levels drop to zero) are a major contributor to lost revenue.
Understanding why backorders happen turns them into opportunities for growth. They reveal critical weaknesses in forecasting and inventory planning. By treating backorders as a signal for improvement, you can build a stronger operation and minimize future disruptions.
How do back orders work?
Here is the typical backorder lifecycle, step by step:
- Customer places an order: A shopper buys an item that your system shows as temporarily unavailable.
- Item flagged out of stock: Your inventory software marks the order as a backorder rather than canceling it.
- Customer notified with estimated delivery date: You send the customer an expected ship date based on supplier lead time.
- Stock replenished: The product arrives from your supplier or manufacturing run.
- Order fulfilled and shipped: You pick, pack, and ship the order, completing the transaction.
For small distributors, clear communication at step three keeps customers from walking away. Providing a realistic timeframe is better than silence.
What causes back orders?
Backorders happen for various reasons. Understanding why is the first step to fixing the problem.
1. Delayed orders from suppliers
Supplier delays can throw your entire supply chain into chaos. Production setbacks or shipping holdups leave you without essential materials, making it tough to fulfill customer demand.
Sometimes demand skyrockets out of nowhere. Maybe your product went viral on social media or it’s a holiday rush. If you’re not stocked up, orders will spill into backorder territory.
2. Human errors
A simple mistake, like a miscount or mislabeled item, can throw your whole inventory off. These small slip-ups might not seem like a big deal at first, but they can quickly lead to backorders and unhappy customers.
3. Poor warehouse management
If your warehouse is disorganized, fulfilling orders takes longer than it should. Delays increase the likelihood of backorders, especially without enough safety stock to cover gaps in supply.
For businesses using third-party logistics (3PL) providers, poor coordination amplifies these issues. A well-organized warehouse or reliable 3PL partner ensures products are easy to locate and prevents stockouts.
What’s the difference between a back order and being out of stock?
Both involve a product being unavailable, but the key difference lies in customer expectation and your ability to fulfill the order:
- Backorder: The customer places an order for an item that’s currently unavailable but will be shipped once it’s back in stock. The customer agrees to wait.
- Out of stock: The product is completely unavailable, with no immediate plans for restocking. You either tell customers it’s unavailable or offer an alternative.
What are the benefits of back orders?
Handled well, backorders can highlight your brand’s popularity and give you useful demand insights. Below are three benefits:
1. Increased customer loyalty
When you’re upfront about delays and keep customers informed, you show that their satisfaction matters. Transparency and care can earn trust and keep customers coming back.
2. A chance to manage demand
Backorders give you a window into future demand. If you see a surge for a product you didn’t expect, backorders help you gauge what customers really want. This lets you reorder in time to meet expectations.
3. Retained revenue
A backorder isn’t a lost sale, it’s a sale delayed. You’ve got a paying customer who’s willing to wait, locking in that revenue for when the product arrives.
What are the drawbacks of back orders?
Backorders come with challenges that can strain operations and customer relationships. Here are four drawbacks:
1. Customer dissatisfaction
The longer customers wait, the more likely they’ll grow frustrated. If things go on too long without clear communication, customers might lose trust and start looking elsewhere. Per AlixPartners‘ 2024 Home Delivery Survey, about 25% of shoppers will take their business elsewhere when delivery-time expectations (around 3.5 days) aren’t met.
2. Higher operational costs
Backorder management requires ongoing effort, from tracking orders to communicating with suppliers. That means extra time and resources, creating a strain on your team. Backorders often lead to higher carrying costs like storage fees and increased labor expenses.
3. Added inventory complexity
Keeping track of what’s been ordered, what’s delayed, and what needs to be fulfilled can be confusing. If your system isn’t organized, you risk making mistakes. A clear process for placing orders and tracking them helps you stay on top of inventory.
4. Delayed cash flow
Backorders create a gap in cash flow since customers aren’t paying for and receiving products right away. This delay can affect your ability to pay bills or invest in new stock.
How to prevent and manage back orders: 5 best practices
Many of the challenges that lead to backorders can be mitigated, if not prevented. Below are five best practices:
1. Create safety stock levels
Safety stock acts as a cushion to keep items available while you wait for the next shipment. By keeping extra inventory on hand, you reduce the risk of stockouts and avoid placing items on backorder for routine reorders.
If a product is consistently backordered, you might not be maintaining a healthy buffer of safety stock. Assessing your reorder points and purchasing volumes can ensure your ecommerce store can still process and fulfill orders.
2. Calculate reorder points
Knowing when to restock is crucial for maintaining a smooth supply chain. Reorder points are calculated based on demand forecasts, your supplier’s lead time, and the average rate of sales. This ensures you replenish stock before it runs out without over-ordering.
Let’s say your supplier has a lead time of two weeks, and your sales trend shows you’ll run out in 10 days. Setting a reorder point lets you avoid situations like this. Inventory management software can track these numbers and alert you when it’s time to restock.
Koken USA, a Columbus-based tools distributor, achieved a 10% reduction in sales backorders by dialing in reorder points with Fishbowl.
3. Keep an eye on your inventory
Monitoring your stock levels gives you insights into which products are moving fast and which might be overstocked. Regular checks help you spot trends and avoid bottlenecks.
Real-time visibility helps you prevent backordering and improve order fulfillment. Modern inventory management systems track stock levels, shipment statuses, and estimated arrival times for incoming orders. Fishbowl AI Insights lets you generate custom inventory reports in plain language, without SQL or custom report requests.
4. Secure multiple suppliers
Relying on just one supplier can be risky. Multiple suppliers give you a safety net so your supply chain keeps moving. If your main supplier faces manufacturing delays, a backup can step in and fulfill purchase orders (POs).
You can also use Fishbowl to enable dropshipping in a pinch. When stock runs low, dropshipping lets your suppliers ship directly to customers, keeping operations flexible.
5. Order more (but not too much)
Striking the right balance is difficult but essential. Ordering more stock than usual can help you prepare for high demand, but overstocking ties up capital and increases carrying costs.
Ensure you have sufficient safety stock without over-purchasing. Use manufacturing inventory software to forecast demand and track restock needs.
Frequently asked questions about back orders
Is a backorder the same as a backlog?
No. A backorder is a specific customer order for an item that’s temporarily out of stock but will be fulfilled once inventory is replenished. A backlog is the broader accumulation of all unfulfilled orders or work waiting to be processed. A backlog can include backorders, but it also covers orders delayed for reasons other than stock availability. For example, a backlog might include orders held up by quality checks, credit approvals, or production scheduling, none of which relate to stock levels.
What’s the difference between a backorder and a pre-order?
A backorder involves an existing product that’s temporarily out of stock. The customer orders it knowing there will be a wait until inventory is replenished. A pre-order is for a new or unreleased product that hasn’t shipped yet. The customer reserves it before it becomes available. For buyers, a pre-order often comes with a launch date, while a backorder wait depends on how quickly the seller can restock from their supplier.
What does “available for backorder” mean?
It means you can place an order now even though the item isn’t currently in stock. Your order is queued, and the product ships once inventory is replenished. You’re securing your spot in line rather than waiting to check back later. Sellers typically provide an estimated ship date so you know what to expect. This option is common for popular products that sell out quickly but have reliable restocking schedules.
Can you automate backorder processing?
Yes. Inventory management software can auto-flag items when stock drops below a threshold, trigger reorder points, generate purchase orders (POs), and track open backorders in one dashboard. Automation reduces manual data entry, speeds up replenishment, and helps you communicate accurate estimated delivery dates to customers. Staff can spend less time on repetitive tasks and more time on customer service and supplier negotiations.
How long does a backorder usually take?
It depends on supplier lead time and the cause of the shortage. Typical backorders take one to several weeks. A domestic supplier with available stock might fulfill in days. Overseas shipping, raw-material delays, or limited production capacity can extend the timeline to a month or more. The best practice is to give customers a clear, realistic estimate upfront and update them if anything changes.
Easily manage backorders with Fishbowl
Managing backorders doesn’t have to be a headache. Fishbowl’s inventory management software, integrated with QuickBooks, gives you real-time visibility into stock levels, helping you restock with fewer delays.
Ready to see how it works? Book a demo today and see how Fishbowl helps you keep stock available and orders moving.
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