What Is a Backorder? How Businesses Sell Products That Are Out of Stock

If you want to buy a product that is temporarily unavailable, it is likely that you are unable to place an order for it. Backorder offers a solution to this issue because it allows your customers to buy the product while it is still out of stock. Instead of having to cancel the sale, your company stores the order for the product until a new lot is available. This helps businesses keep customers who would otherwise leave for a competitor, and it gives customers a clear path to get the product they want. In this blog, we tell you what is a backorder, why companies use it, the advantages and inconveniences of backorders, and how to manage it efficiently.

What Is a Backorder in Simple Terms?  

When you place an order for a product or service that is out of stock, you are creating a backorder. The seller takes your order, agrees to provide you with the item or service when it becomes available, and lets you know when it ships to you, which makes it possible for a seller to accept your order but be out of stock at the moment. For example, if an electronics retailer sells out of one particular model of a laptop during a clearance sale, the retailer can accept the purchase and let the customer know that the laptop ships after the next inventory is received.  

How Does the Backorder Process Work?  

To learn what is a Backorder in action, it's useful to understand what steps may be involved in the process. Read carefully to understand how backorder processes work for you.  

• Choose Product: The customer chooses a product that is out of stock and orders it. The company notes this order in the order management system.  

• Business Confirms Availability: The business reviews its stock records and confirms the product's availability. It provides an estimated delivery time to the customer.  

• Business Replenishes Inventory: The buying team places an order for new supplies with the supplier or manufacturer. The supplier supplies a delivery date estimate to the business to enable them to plan the fulfillment.  

• Business Fulfills the Order: When the new stock arrives, the business pulls the demanded amount for unfulfilled orders. The warehousing team then picks, packs, and ships the items to the customers.  

• Customer Receives the Product: When feasible, the company provides tracking info and processes the order upon receipt.  

Backorders may be handled with a simple inventory management system and continuous communication between the purchasing, warehouse, sales, and customer support teams. If not coordinated properly, backorders can be in queue much longer than anticipated.  

What Is a Backorder Meaning in Inventory Management?  

To understand what is a backorder, compare it with other situations where inventory is low. These differences are critical to making the right choice  

Inventory term	Meaning
Backorder	The business orders a product that is out of stock and sells it when it is back in stock.
Out of stock	This item is not in stock and the shop may or may not take new orders.
Preorder	You can sell a product that is not yet released or offered for sale.
Stockout	The business runs short due to inventory that cannot be fulfilled.
Backlog	A set of jobs or tasks that have not been processed and are now open.

Backordered items should be clearly visible on websites and order confirmations. It's vital for consumers to understand whether a product is immediately available to ship, the estimated time of shipping, and whether it is rescheduled.

Why Are Backorders Good for Your Company?

Backorders can help protect sales, but you need accurate data on stock, a good supplier, and a reliable delivery date to do that.  

• Sustains Sales During Stock Depletion  

Temporary out-of-stock situations do not necessarily result in the customer giving up on the sale. Bumping up a sale by backordering allows you to take advantage of demand that customers still want to fill. For instance, an office chair retailer can take orders while awaiting its next shipment, and customers still get to buy the chair instead of looking for another retailer.  

• Provides Business Insight Into Customer Demand  

Backorders reveal what consumers are asking for that the company does not yet have in stock. Increasing backorder levels may suggest that a product requires more frequent reordering or more safety stock. Management can use backorder data with historical sales, seasonal trends, and supplier lead time to better inform the decision-making process for purchase departments. Applying business analytics to backorder data shows which products need earlier reordering or higher safety stock. 

• Minimizes Excess Inventory  

Many companies keep substantial amounts of inventory on hand to prevent product shortages. But storing too much inventory adds to warehousing costs and can keep a company's working capital tied up in stock. Implementing a backorder strategy helps a business find the right balance between product availability and investment in inventory. Companies might take customer orders for a particular product instead of carrying inventories of every product.  

• Facilitates Availability of the Product via Various Channels  

Most companies sell via their website, through their local stores, at marketplaces, or by sales reps. A well-managed backorder process allows all of these channels to communicate backorder information more consistently. The firm can then allocate new stock to customers based on order date, priority rules, or contractual obligations.  

Knowing what is a Backorder allows companies to appreciate that a lack of stock does not necessarily mean they need to halt sales. If they plan appropriately, they can maintain demand while fulfilling the orders later.

What Are the Common Challenges of Backorders?

A delay in delivery through backorders helps the company hold the sale but may also cause operational problems for the company if the business is unable to ship all items on the order when the order is received.  

• Delayed Deliveries  

There are many reasons why a delay may occur, such as delayed suppliers, production issues, transportation problems, or unexpected demand. If a company commits to a ship date before they know if their suppliers are able to fulfill it, the order may arrive weeks or even months later. Businesses should communicate updates and review delivery information with suppliers regularly. 

• Customer Dissatisfaction  

Customers get upset if they purchase a product but aren't able to get it right away. In cases of lack of communication, the buyer gets even more annoyed if he or she is unaware of when the package will be delivered. Backorder display before checkout, estimated shipping date, and notices that inform shoppers that the inventory is back in stock can help businesses in this regard. CRM software helps support teams track each customer’s backorder and send timely delivery updates 

• Inventory and Order Management Mishaps  

Backorder inventory needs to account for available stock, incoming shipments, and pending customer orders. If each selling channel operates with separate inventory data, it's possible to oversell your inventory. Create a centralized inventory system that ensures your teams can see incoming shipments and assign products accordingly. It's also important to reconcile your inventory and understand pending customer orders.  

• Higher Operational Expenses  

Backorders may also lead to more customer calls, more order processing, and more planning for shipments. Receiving inventory in multiple small shipments may require multiple order receipts rather than consolidated order processing. Companies should evaluate whether backorders make sense from a profitability point of view for each product. For in-demand items, the incremental sales from the backorders may more than offset the extra operating costs.

Conclusion  

Understanding “What Is a Backorder” helps businesses handle temporary inventory shortages without automatically losing customer orders. By accepting orders for unavailable products, companies can retain sales, identify customer demand, and manage inventory investment. However, these advantages depend on accurate stock records, reliable suppliers, realistic delivery estimates, and clear customer communication. Businesses should monitor outstanding orders, prioritize incoming inventory, and review fulfillment performance regularly. They should also tell customers about expected delays before accepting a purchase. When companies manage these processes carefully, backorders can support sales while helping teams maintain better control over inventory and order fulfillment.