A backorder is an order a customer has placed for something you do not currently hold, which you have accepted and will fulfil once stock arrives. Unlike a stockout, where the sale is usually lost, a backorder retains the revenue and converts it into a delayed obligation.
The distinction that matters is between a backorder and a stockout. In a stockout, the sale is lost — the customer finds the item unavailable and goes elsewhere. In a backorder, the customer has chosen to wait. You have kept the revenue and taken on an obligation.
That difference is the whole argument. A backorder is a stockout you managed to convert into a delayed sale, and whether that is a good outcome depends entirely on how well you manage the wait.
What a backorder is
Three things have to be true for something to be a backorder rather than a failure:
The customer has committed. They have placed the order knowing the item is not available now.
You have committed. You have accepted the order and, usually, taken payment or authorised it.
There is a real expectation of supply. Stock is on order, in production or in transit. An order accepted against stock you have no plan to obtain is not a backorder; it is a problem being deferred.
Backorders arise at two levels. Customer backorders are the ones described above. Supplier backorders are the mirror image — you have ordered from your supplier and they cannot supply, which is frequently the underlying cause.
How backorders work
1. The order is placed against stock showing zero or below the quantity required.
2. The system flags it as a backorder rather than allocating stock. This matters: an order queued against stock that does not exist will otherwise sit in the pick queue and fail at the shelf, wasting a picker’s time and producing a short shipment.
3. The customer is told, with an expected date. This is the step that determines whether the backorder holds or the customer cancels.
4. Replenishment is triggered or, if stock is already inbound, the backorder is linked to the expected receipt.
5. Stock arrives and is allocated to backorders, normally in the order they were received, though some operations prioritise by customer or by value.
6. The order ships, and the customer is notified.
The allocation rule at step five is worth deciding deliberately. First come, first served is the fairest and easiest to explain. Prioritising large or strategic customers is commercially rational and produces awkward conversations when a smaller customer who waited longer receives nothing.
Split shipments: the hidden cost
When part of an order is available and part is backordered, you choose between holding the whole order until complete, or shipping what you have now and the rest later.
Shipping complete costs one delivery and delays everything the customer ordered, including the items you had.
Splitting gets available goods out immediately and costs a second pick, a second pack and a second shipment — often for a single low-value item.
Neither is right in all cases. Most operations set a rule: split when the available portion exceeds some value or proportion, hold when the backordered item is arriving within a few days. Making it a rule rather than a judgement call is what keeps dispatch consistent and stops the cost appearing unpredictably.
It is also worth being explicit about who pays for the second shipment. Absorbing it is a service decision with a real cost attached, and operations that never quantify it are frequently surprised by how much backorders cost once split shipments are counted.
The pros and cons of backorders
In favour:
- The sale is retained rather than lost to a competitor.
- You hold less stock. Accepting backorders on slow or expensive lines means not carrying inventory that may not sell.
- Demand signal. A backorder is firm evidence of demand, better than a forecast, and useful for products where you are uncertain.
- Cash flow, where you take payment at order rather than at dispatch.
- It suits made-to-order and high-value goods, where customers expect to wait and holding stock would be irrational.
Against:
- Customers cancel. The longer the wait and the vaguer the date, the more of them do.
- Administration. Tracking, communicating, allocating and chasing backorders is real work that scales with volume.
- Split shipment cost, as above.
- Customer service load. Every backorder generates enquiries, and the enquiry volume rises sharply once a promised date passes.
- Reputational damage, particularly on marketplaces where late dispatch affects your account standing directly.
- They mask the real problem. A business running a lot of backorders has an availability problem, and backorders make it survivable enough that nobody fixes it.
That last point deserves emphasis. Backorders are a mitigation, not a strategy. A rising backorder rate is a symptom.
The impact of backorders: advantages and disadvantages of selling on backorder
Accepting orders for stock you do not hold is a deliberate commercial choice, and it cuts both ways.
The advantages.
- You keep the sale. This is the whole case. A customer who would otherwise have gone to a competitor stays yours, and the revenue is delayed rather than lost.
- Demand becomes visible. A backorder queue is direct, quantified evidence of demand you are not serving — far better information than the silence a plain stockout leaves behind.
- Less capital tied up. Selling on backorder means holding less stock against uncertain demand, which frees cash. For expensive or slow-moving lines, this can be the difference between stocking something and not offering it at all.
- It de-risks new products. Taking backorders before committing to a large purchase tells you whether the demand is real.
- Purchasing gets a firmer signal. Committed orders are a better basis for a supplier order than a forecast is.
- It can create urgency. For genuinely scarce or anticipated products, a visible backorder queue signals popularity, and some businesses use it deliberately.
The disadvantages.
- Customer patience is finite and unevenly distributed. Some will wait indefinitely for the right product; others cancel within days. You rarely know which until it is too late.
- Cancellation risk rises with every day of delay, and a cancelled backorder costs you the picking, the admin and the customer relationship rather than just the sale.
- Administrative cost. Backorders need tracking, allocating when stock arrives, communicating about, and chasing. This is real labour that a shipped order does not consume.
- Split shipments cost money. Sending the available part now and the rest later means paying twice to ship one order, which frequently exceeds the margin on the missing line.
- Payment and accounting complexity. When to charge, how to handle partial refunds, and how to recognise the revenue all become questions rather than defaults.
- Reputation risk. A backorder handled with silence becomes a complaint and a review. The failure people remember is almost never the delay itself — it is not being told.
- It can mask the real problem. An operation comfortable with backorders stops treating availability failures as failures, and the underlying reorder points never get fixed.
The honest balance. Backorders are worth accepting where the product is differentiated enough that customers will wait, where you can give a delivery date you will actually meet, and where the administrative cost is proportionate to the margin. They are a poor idea on commodity items with easy substitutes, on low-margin lines where the admin outweighs the profit, and on anything where you cannot say with confidence when the stock will arrive.
The decisive variable is not whether you offer backorders but whether you communicate about them. Customers tolerate waiting considerably better than they tolerate being left to wonder.
When backorders make sense — and when to avoid them
They work where:
- The product is genuinely differentiated and customers will wait rather than substitute.
- Value is high and holding stock speculatively is expensive.
- Demand is unpredictable and stocking to peak would mean carrying dead stock.
- Lead times are short enough that the wait is measured in days.
- The customer relationship is B2B and contractual, where planned lead times are normal.
They fail where:
- The product is commoditised and an identical item is available elsewhere immediately.
- The customer is a consumer buying on impulse.
- Your date estimates are unreliable, which turns one disappointment into several.
- You sell on a marketplace with dispatch-time requirements.
- The backorder exists because forecasting failed rather than because holding stock was uneconomic.
Managing backorders well
Be accurate about dates, and conservative. A customer told two weeks and served in ten days is pleased. One told one week and served in ten days is not, despite the identical outcome. Under-promise deliberately.
Communicate without being asked. Most backorder complaints are about silence rather than delay. An update when the date changes, and a confirmation when stock arrives, removes most of the enquiry volume.
Update the date when it slips, immediately. The single worst pattern is a date passing without acknowledgement, because the customer then assumes the order has been forgotten and contacts you in a worse frame of mind than if they had been told.
Make cancellation easy. Counter-intuitive, and it preserves the relationship. A customer who cancels cleanly may return; one trapped in an order they no longer want will not.
Set allocation rules in advance and apply them consistently.
Track backorders as a metric, not just as a queue. Backorder rate, average age, and cancellation rate together tell you whether the situation is stable or deteriorating.
Review the causes monthly. Which products, which suppliers, which reasons. Backorders concentrated in a few lines are a stocking problem you can fix; backorders spread evenly are a forecasting or supplier problem.
What actually causes backorders
Fixing backorders means knowing which of several quite different causes you have, because the remedies do not overlap.
Forecast error. Demand exceeded what you planned for. Common with new products, promotions, seasonal lines and anything affected by external events. The remedy is better forecasting and larger buffers on the lines where error is expensive — though note that a genuinely unforecastable spike is not a forecasting failure, and treating it as one leads to permanently over-stocking against an event that will not repeat.
Supplier failure. The stock was ordered in good time and did not arrive. This is the most common cause in practice and the one most often misattributed to forecasting. Distinguishing them requires measuring actual supplier lead times against promised ones, which many operations never do.
Reorder point set too low. Often because it was calculated from a quoted lead time rather than a measured one, or because it was set two years ago and demand has grown since. Cheap to fix and easy to overlook.
Nobody acted on the alert. The system flagged the reorder and the purchase order was not raised. Surprisingly frequent, and it shows up as backorders on products whose parameters are entirely correct.
Inventory inaccuracy. The system believed stock existed, orders were accepted against it, and the shelf was empty. These are the worst backorders because they arrive without warning — the customer was told the item was available.
Deliberate policy. You chose not to stock it. Entirely legitimate for high-value, slow-moving or made-to-order goods, and it should be visible as a separate category so it does not contaminate your analysis of the failures.
Coding every backorder to one of these at the point it occurs takes seconds and turns a queue of individual problems into a pattern you can act on. Operations that skip this end up addressing whichever cause was most recently memorable rather than whichever is most common.
Backorders in different sales channels
The same backorder behaves very differently depending on where the order came from.
Your own website. You control the messaging, the expectations and the cancellation process. You can display expected dates, allow pre-orders explicitly, and communicate as often as you like. This is the most forgiving environment, and the one where backorders are most likely to hold.
Marketplaces. Considerably less forgiving. Most platforms have dispatch-time requirements, and late dispatch affects your seller metrics, your visibility and in some cases your account standing. Many prohibit listing stock you do not hold. The safe approach on marketplaces is generally not to accept backorders at all — list only what you can ship within the required window.
B2B and trade customers. Usually the most tolerant, because they plan their own requirements and understand lead times. What they will not tolerate is a date that moves repeatedly, because their own planning depends on yours. A longer but firm date beats a shorter one you miss.
Retail supply. The least tolerant of all. Large retailers operate on-time-in-full requirements with financial penalties attached, and a backorder against a retail purchase order is a service failure with a cost, not a delayed sale.
The practical implication is that backorder policy should differ by channel rather than being set once for the business. Accepting backorders on your own site whilst holding marketplace listings to available stock is a common and sensible arrangement.
The metrics to watch
- Backorder rate — backordered lines as a share of total order lines. The headline figure.
- Average backorder age — how long open backorders have been waiting. A rising average means replenishment is not keeping pace.
- Backorder cancellation rate — the share cancelled before fulfilment. The clearest measure of whether customers find the wait acceptable.
- Fill rate — the inverse view: the share of orders shipped complete first time.
- Time to fulfil a backorder, from order to dispatch.
Read backorder rate alongside inventory turnover. A low backorder rate with low turnover means you are holding too much. A high backorder rate with high turnover means you are running too lean. Either can be the right answer depending on your margins and your customers’ tolerance, but you should know which one you have chosen.
Backorders versus pre-orders
The two get conflated and they are commercially different, which matters for how you present them.
A pre-order is for something that does not yet exist or has not yet been released. The customer knows this from the outset, the wait is the expected condition of purchase, and the release date is usually set by the manufacturer rather than by your replenishment. Pre-orders are a positive signal — they indicate demand ahead of supply and let you size an initial order against real commitment rather than a forecast.
A backorder is for something that exists and should have been available. The customer’s expectation was that it would be in stock. The wait is a shortfall against that expectation rather than a condition they accepted going in.
The practical differences:
- Tone of communication. A pre-order update is news. A backorder update is an apology with information attached.
- Cancellation behaviour. Pre-order customers are generally patient because they chose the wait. Backorder customers become impatient quickly.
- What the volume tells you. High pre-orders mean the product is wanted. High backorders mean your availability is failing.
- Payment norms. Pre-orders more commonly take payment or a deposit up front, because the commitment is the point.
Presenting a backorder as a pre-order to soften it tends to backfire, because customers recognise the difference between waiting for something new and waiting for something you should have had. Being straightforward about which situation applies is both simpler and better received.
Where to go deeper
- What is a stockout — the outcome a backorder avoids.
- What is fill rate — the service measure backorders reduce.
- What is safety stock — the buffer that prevents them.
- What is a reorder point — the trigger that keeps stock arriving in time.
- What is demand forecasting — addressing the root cause.
- What is order fulfilment — the process backorders disrupt.
The one-line takeaway
A backorder is a sale you have kept by asking the customer to wait — worth doing where the product is differentiated and the wait is short and honestly communicated, and a warning sign when the rate is rising, because it means your availability problem is being managed rather than fixed.
Frequently asked questions
What is a backorder? An order for a product that is currently out of stock, which the seller has accepted and will fulfil once stock arrives. The customer waits rather than the sale being lost.
What is the difference between a backorder and a stockout? A stockout is unavailability where the sale is usually lost, because the customer finds the item missing and buys elsewhere. A backorder is unavailability where the customer has agreed to wait, so the sale is retained as a delayed obligation rather than written off.
Is a backorder bad? Not inherently. It is better than a lost sale and worse than having stock in the first place. A small backorder rate on high-value or differentiated products is a reasonable commercial choice; a rising rate across a commoditised range indicates an availability problem that backorders are concealing rather than solving.
How long should a backorder take? As short as your replenishment allows, and no longer than you told the customer. Cancellation rates rise sharply beyond a couple of weeks for consumer goods, though B2B customers with planned requirements often accept considerably longer.
Should I ship partial orders? Set a rule rather than deciding case by case. Splitting gets available goods to the customer sooner but costs a second pick, pack and shipment. Holding is cheaper and delays items you could have sent. Most operations split above a value or proportion threshold.
How do I reduce backorders? Address the cause rather than the symptom. That means better demand forecasting, reorder points set from measured rather than quoted supplier lead times, adequate safety stock on the lines where a stockout is expensive, and supplier performance management where late deliveries are the trigger. Coding each backorder to a cause is what tells you which of those four to spend on.
What is a backorder rate and what is a good one? Backordered lines as a share of total order lines. There is no universal target, because the right figure depends on your margins and what your customers will tolerate. What matters more than the absolute number is the trend and whether it concentrates in particular products or suppliers, which is what tells you whether it is a stocking decision or a failure.
Can I take payment for a backordered item? Commonly yes, though consumer protection rules in some markets restrict charging before dispatch, and marketplace policies often prohibit it. Check the requirements for your jurisdiction and sales channel, because getting it wrong creates a refund obligation and potentially a compliance problem.
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