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What is Backorder? Definition, Challenge, Tips & Tools

A backorder is an order which you assure to fulfill despite not having the concerned item in the inventory. The promise includes a shipping date until which your customer agrees to wait.

While backorders allow businesses to continue selling products that are temporarily out of stock, they come with challenges such as customer dissatisfaction, increased operational costs, and potential revenue loss.

Causes of Backorders

Backorders can occur due to several factors, many of which are preventable with proper inventory planning.

1. Demand Fluctuations

Unexpected spikes in demand—due to seasonal trends, viral marketing, or special promotions—can quickly deplete inventory before suppliers can restock.

2. Supply Chain Disruptions

Delays in manufacturing, transportation, or customs clearance can prevent timely inventory restocking.
Global events, such as pandemics, trade restrictions, or labor shortages, can disrupt supplier operations.

3. Inventory Management Errors

Inaccurate stock tracking, miscounting, or system failures can create false inventory records, leading to unexpected stockouts.
Poor forecasting can result in over-ordering slow-moving products while under-ordering fast-moving ones.

Impact of Backorders on Business

While backorders allow businesses to continue accepting orders, they come with challenges.

1. Customer Satisfaction and Retention Risks

  • Long wait times can frustrate customers, leading to canceled orders and negative reviews.
  • Transparency about expected fulfillment dates can help mitigate dissatisfaction.

2. Increased Operational Costs

  • Handling backorders requires additional administrative efforts, such as tracking pending orders, updating customers, and managing supplier coordination.
  • Businesses may need to expedite shipping once inventory is available, increasing logistics costs.

3. Revenue and Cash Flow Disruptions

  • Businesses may experience delayed revenue recognition if they only charge customers upon order fulfillment.
  • Extended backorder periods may affect cash flow planning.

Best Practices for Managing Backorders

Effectively managing backorders minimizes customer frustration and ensures smooth order fulfillment.

1. Provide Clear Communication

  • Notify customers of expected shipping delays and offer updates via email, SMS, or website alerts.
  • Offer alternative product recommendations or discounts to retain customer trust.

Example: An online shoe store offers a 10% discount code to customers experiencing backorder delays.

2. Strengthen Supplier Relationships

  • Partner with reliable suppliers who can offer priority restocking during high-demand periods.
  • Diversify suppliers to reduce dependence on a single source.

Example: A pet food brand works with multiple manufacturers to ensure uninterrupted supply.

3. Implement Advanced Inventory Management Systems

  • Utilize real-time inventory tracking software to predict demand and prevent stockouts.
  • Automate reorder points to proactively restock before running out of stock.

Example: A fashion brand integrates an AI-driven inventory system to detect low stock levels and trigger reorders automatically.

Strategies to Prevent Backorders

While backorders can’t always be avoided, businesses can implement strategies to minimize occurrences and reduce impact.

1. Improve Demand Forecasting

  • Use historical sales data, seasonal trends, and market analytics to predict inventory needs accurately.
  • AI-driven forecasting tools can help refine projections based on customer behavior.

2. Maintain a Safety Stock

  • Keep an emergency buffer of critical products to handle unexpected demand spikes.
  • Regularly review safety stock levels and adjust based on sales trends.

3. Conduct Routine Inventory Audits

  • Regularly verify stock levels to ensure records match physical inventory.
  • Address discrepancies before they lead to backorders.

Conclusion

Backorders are a natural part of retail and eCommerce, but they must be properly managed to maintain customer trust and operational efficiency.

  • Identify the causes of backorders—whether demand fluctuations, supply chain delays, or inventory mismanagement.
  • Communicate clearly with customers to set expectations and retain loyalty.
  • Implement best practices and technology to prevent stockouts and ensure smooth fulfillment.

Want to improve your inventory planning? Try Cin7’s automated inventory system for real-time reorder alerts and smarter stock management.