A backorder is a customer order for an item that is out of stock, which you accept and commit to fulfill once inventory arrives. The customer buys now and receives the item later. When you are managing stock across dozens of SKUs and several suppliers, backorders are what stand between a demand spike and a lost sale.
Backordering is the process of running those orders. The two terms get used interchangeably, but the distinction matters once you set them up in a system: a backorder is a record against a specific sales order, and backordering is the workflow that fulfils it.
What causes backorders
A backorder is usually a symptom of something that happened upstream. Six causes account for most of them.
A demand spike you did not forecast: A seasonal peak, a promotion that performed better than planned, or a product that suddenly gets attention.
Supplier lead time slipping: The purchase order went out on schedule, and the goods did not arrive on schedule. Lead time variability causes more backorders than lead time length does.
A reorder point set too low: Stock reaches zero before the replenishment order lands. See what is a reorder point.
Minimum order quantities: You cannot place a small top-up order, so you wait until a full order is justified and run thin in the meantime.
Forecasting error on slow movers: Low-volume SKUs are the hardest to predict and the easiest to understock.
A deliberate strategy: Build-to-order and just-in-time operations carry backorders as standard practice rather than as a failure.
The first five are problems to fix. The last one is a choice, and it changes how you should measure the others.
Backorder vs. pre-order
A backorder is for a product that already exists and has sold out. A pre-order is for a product that has not been released yet.
The practical difference is how much you know about the fulfillment date. With a pre-order you usually have a release date and can tell the customer exactly when to expect delivery. With a backorder, the date depends on your supplier, which is why backorder communication is harder to get right and why customers cancel backorders more often than pre-orders.
Backorder vs. stockout
A stockout means you have no sellable stock of an item. A backorder is an order you accept while that stockout is in effect.
Every backorder starts as a stockout. Only some stockouts become backorders, because the rest are customers who found the item unavailable and left. That is the whole commercial argument for backordering: it converts a proportion of stockouts into retained revenue instead of lost sales.
How backordering works
The fulfillment path changes at one point: what happens after the sales order is created.
In a scenario where the items ordered are in stock, this is the order fulfillment process:
- The customer places an order for an item.
- You generate a sales order for the item.
- You find the item in your inventory and match it with the sales order.
- You ship the item to the customer to fulfill the order.
In a backordering scenario, here is how the order fulfillment process works:
- The customer places an order for an item that is out of stock.
- You open a backorder for the item and convert the backorder into a purchase order for your vendor.
- You send the purchase order to your vendor.
- Your vendor fulfills your order. Once the item arrives at your warehouse, you ship it to your customer to fulfill their order.
Backordering is relatively simple when dealing with one out-of-stock item. But if you’re dealing with a stockout situation across several products, or you’re relying on backordering as your main inventory strategy, you need to be able to match each purchase order with the correct sales order before you begin the order fulfillment process. In order to manage your incoming items and outgoing sales simultaneously, it helps to have an inventory management system that can match up your sales and purchase orders for you.
How long does a backorder take?
A backorder takes as long as the sum of four things: the time remaining on your purchase order, your supplier's actual lead time rather than their quoted one, your receiving and putaway time, and your normal pick, pack, and ship cycle.
Two practical points follow from that. Quote a range rather than a date, because the supplier stage is the one you control least. And track your supplier's delivered lead time against their promised lead time, because the gap between the two is what turns a two-week backorder into a six-week one.
What backorders cost you
Backordering retains revenue that a stockout would lose, and it is not free. The costs are spread across several places, which is why they often go unmeasured.
Cancellations: The longer the wait, the higher the proportion of backorders that never convert.
Support load: Backordered customers contact you for updates. Every day of delay adds contacts.
Goodwill discounting: Discounts, free shipping, and credits offered to keep a waiting customer erode the margin on the order.
Split shipments: A multi-line order that is part backordered often ships twice, so you pay to ship the same order more than once.
Distorted forecasts: Backordered demand can be recorded on the fulfillment date rather than the order date, which pushes demand into the wrong period and makes the next forecast worse.
Where backordering genuinely helps
Used deliberately rather than as a fallback, backordering supports three things.
Customization
Because a backorder passes the requirement to your supplier before production or picking, it accommodates configurable and made-to-order products that a fixed stock model cannot.
Lower carrying cost
Holding less stock frees capital and reduces storage, insurance, and handling costs. For a retailer starting out, it lowers the opening inventory investment. See what is carrying cost for how to quantify this.
Less obsolescence
Faster turnover means goods spend less time in storage, so there is less exposure to damage, expiry, and product cycles moving on. For strongly seasonal products, backordering lets you meet peak demand without carrying units into the off-season.
How to reduce backorders
If backordering is a strategy, the goal is to control the wait. If it is a symptom, the goal is to reduce the frequency. Both start in the same place.
Recalculate your reorder points using actual lead times, not quoted ones: A reorder point built on an optimistic lead time will keep producing backorders no matter how well you forecast.
Set safety stock against demand and lead time variability: See what is safety stock for the calculation. Variability matters more than average demand does here.
Improve forecasting on your highest-value SKUs first: Backorders on a top seller cost far more than backorders spread across a long tail. See inventory forecasting for the methods.
Score your suppliers on delivered lead time: Track promised against actual by supplier and by SKU, then negotiate or re-source the worst performers.
Renegotiate minimum order quantities on fast movers: A lower MOQ lets you top up more often and hold less.
Offer substitutes at the point of sale: A customer shown an available alternative may not need to wait at all.
How to tell a customer their order is backordered
Most backorder cancellations come from silence rather than from the delay itself. A backorder notification should cover six things.
Which item and quantity are affected, and which lines are shipping now?
An expected delivery window, given as a range with a clear latest date.
Whether the customer has been charged now or will be charged on dispatch.
Whether they can cancel and how.
Whether the order can be split so available items ship immediately.
When you will contact them again, and then contact them on that date even if nothing has changed.
The last point is the one most often skipped, and it does the most work. A scheduled update with no news still tells the customer the order has not been forgotten.
How to measure backorder rate
The backorder rate tells you how often you are selling stock you do not have.
Backorder rate = (backordered orders ÷ total orders) × 100
Worked example, using illustrative figures. A business takes 4,000 orders in a month. 240 of them contain at least one backordered line.
240 ÷ 4,000 = 0.06, so the backorder rate is 6%.
Track it by SKU as well as overall. A 6% rate spread evenly across the catalogue is a forecasting issue. The same 6% concentrated in four products is a supplier issue, and it is fixed in a completely different way.
Pair it with fill rate, which is the percentage of order lines you fulfill from stock on the first attempt. Backorder rate counts how often you fall short. Fill rate counts how much of the order you still managed to ship. Reading them together is more useful than reading either alone. The guide to order management covers where both fit in the wider fulfillment process.