Back ordering is when a customer places an order for a product that's currently out of stock, and you commit to fulfilling it once inventory is replenished.
To manage back ordering effectively, you need a clear process for communicating timelines, restocking quickly, and keeping customers informed every step of the way.
Here's how to do it right.
A. Tell the customer you don't have enough in stock and turn them away.
B. You take the order and purchase more from your vendor or manufacture more to fulfill the order.
If you choose A, you're turning away a customer who has a need. They'll look elsewhere to satisfy it and might never come back.
If you choose B, you're backordering — and you'll keep your customers happy while stopping them from going to your competitors.
What is a backorder?
A backorder occurs when a customer places an order for a product that isn't currently available in your inventory. Unlike an out-of-stock situation where the sale is lost, a backorder means the customer agrees to wait while you restock.
For growing manufacturers, backorders are common. Maybe a raw material shipment is delayed, or demand spiked faster than your production plan anticipated. The key difference is intent: a backordered item *will* be fulfilled — it just takes longer.
Backorder vs. out of stock vs. preorder
These three terms get confused frequently. Here's how they differ:
| Term | Item exists? | Customer can order? | When it ships |
|---|---|---|---|
| Backorder | Yes, but temporarily unavailable | Yes | Once restocked |
| Out of stock | No current inventory | Typically no | Unknown |
| Preorder | Not yet produced or released | Yes | After launch/production |
A backorder implies the product is proven, available from your supplier, and the delay is temporary. An out-of-stock item might not come back at all. A preorder is for something that hasn't been manufactured or released yet.
What causes backorders?
Backorders don't happen randomly. They're usually a symptom of one or more underlying issues:
Demand spikes — A sudden surge in orders exceeds your available stock. Seasonal trends, promotions, or viral attention can all trigger this.
Supplier delays — Your vendor misses a delivery window, leaving you short on raw materials or finished goods.
Inaccurate inventory counts — If your records show 50 units but you actually have 30, you'll oversell and create backorders. This is especially common for manufacturers still relying on spreadsheets.
Long lead times — Some components take weeks or months to arrive. Without proper MRP planning, you can easily miscalculate when to reorder.
Safety stock set too low — If your buffer inventory is too thin, even a minor disruption creates stockouts.
Manufacturing delays — Equipment breakdowns, quality holds, or labor shortages can slow your production schedule.
Understanding *why* backorders happen is the first step toward deciding whether they're acceptable for your business — or something you need to eliminate.
What happens in a typical backordering process?
To better understand this process, let's compare how order fulfillment works when there's enough stock in your warehouse versus when items are out of stock.
When items are in stock
The customer places an order.
A sales order is generated.
Inventory is picked, packed, and shipped.
The customer is notified and the order is fulfilled.
When items are backordered
The customer places an order.
You figure out what items are short and create purchase orders.
You send the purchase orders to your vendors.
Your vendor fulfills your order. Once the item arrives at your warehouse, you ship it to your customer to complete their order.
Backordering is relatively straightforward when dealing with one out-of-stock item. But if you're dealing with a stockout situation across various products — or you're relying on backordering as your primary inventory strategy — you need to match each purchase order with the correct sales order before you begin fulfillment.
Delays at any phase can have serious consequences for your brand. Let's look at whether your business should even consider backordering.
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Do you need to use backordering?
Determine who you're selling to
Are you primarily Business to Consumer (B2C), Business to Business (B2B), or a mix of both?
B2C — Consumers expect fast shipping, thanks to Amazon and other large retailers. These customers might not tolerate backorders, so you may need to rely on drop shipping for fast fulfillment or invest in better demand forecasting and reorder points.
B2B — Business buyers typically purchase ahead of time and are more patient with lead times. Backordering usually won't deter them, especially if you communicate clearly.
Types of products you're selling
Do the products have a high carrying cost, or are they bulky? If items are costly to carry or they take up a lot of warehouse space, it's often better to backorder. You can even offer a reduced price since you're saving on carrying costs.
To make this work, communicate with your customers upfront and let them know the expected delivery timeline.
Advantages of backordering
Customization
Since backordering involves passing the order to your supplier or production team, it's easy to accommodate customization. For example, if you manufacture bikes, instead of stocking a few standard models, you can let customers choose frame color, components, and accessories before they purchase. This lets you offer more variety and become more appealing to your customers.
Cost reduction
Backordering reduces carrying costs by preventing you from overstocking and paying to maintain excess inventory in your warehouse. Inventory is capital — not holding too much stock means more cash on hand. For example, many luxury car companies keep less inventory on hand and purchase more on-demand, reducing the capital tied up in excess stock.
Waste reduction
Backordering reduces waste because there's less inventory sitting around that could get spoiled, damaged, or obsolete. For example, if you sell electronics, you might get a huge demand spike when a product first releases. But as time passes, demand falls — and once a newer version launches, sales for the old model become nonexistent. You don't want to be left with unsold stock. Backordering lets you meet demand with less risk.
Increased brand and product value
Some companies use backordering strategically to create demand. For instance, when Apple releases a new iPhone, there's a surge in orders that quickly sells out available stock. The resulting backorder waitlist increases curiosity and perceived value in the eyes of the customer. As backorders pile up, desire to buy skyrockets.
Disadvantages of backordering
Backordering isn't always a good thing. Here are the risks:
Customer frustration and churn
Not every customer will wait patiently. If a competitor has the same product in stock, you'll lose the sale — and potentially the customer for good. B2C buyers are especially sensitive to delays.
Increased operational complexity
Managing backorders across dozens of SKUs and multiple suppliers gets complicated fast. You need to track which sales orders map to which purchase orders, manage partial shipments, and keep customers updated throughout the process.
Cash flow uncertainty
Backorders mean revenue is delayed. You may have already spent money on marketing or production planning, but you won't collect payment (or will face higher refund rates) until you actually ship.
Damage to brand reputation
Frequent backorders signal unreliability. If customers regularly see "backordered" on your product pages, they'll start shopping elsewhere — even if your product is better.
| Advantage | Disadvantage |
|---|---|
| Lower carrying costs | Delayed revenue |
| Less waste and obsolescence | Customer frustration |
| Enables customization | Higher operational complexity |
| Can increase perceived demand | Risk of brand damage |
What is a good backorder rate?
Your backorder rate measures the percentage of orders that can't be fulfilled immediately. The formula is:
Backorder rate = (Number of backordered orders ÷ Total orders) × 100
For example, if you received 500 orders last month and 25 were backordered, your backorder rate is 5%.
Most supply chain benchmarks suggest a backorder rate below 5% is acceptable, and below 2% is excellent. Anything above 10% signals a serious inventory planning problem that needs attention.
Track this metric monthly. If your backorder rate is climbing, it's time to review your safety stock levels, supplier lead times, and demand forecasting process.
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How to set up a backordering process
1. Find a reliable supplier
You need a supplier with a consistent, short lead time. If your vendor can't deliver reliably, your backorder promises to customers will fall apart. Evaluate suppliers on on-time delivery rate, communication quality, and ability to handle rush orders.
2. Consolidate backorders
When you receive a batch of sales orders, more than one product might be out of stock — spread across multiple orders from different customers. If those products come from different suppliers, managing everything manually becomes overwhelming.
This is where an inventory management system becomes critical. The right software automates backorder tracking and simplifies consolidation, so you're not matching purchase orders to sales orders in a spreadsheet.
3. Set reorder points and safety stock
The best way to manage backorders is to prevent unnecessary ones. Set reorder points for your key SKUs so you automatically trigger a purchase order before stock runs out. Pair this with safety stock calculations based on your historical demand variability and supplier lead times.
4. Communicate with customers proactively
Since backorders take time, you need to communicate regularly with your customers. Lack of communication erodes trust and kills repeat business.
Build a process where you update customers at each stage. For example:
Send a confirmation when the backorder is placed
Notify them when the item ships from your vendor to your warehouse
Send a shipping notification when you fulfill their order
If there are delays, be transparent about the reason and provide an updated estimated arrival date
5. Track and measure your performance
Monitor your backorder rate, average fulfillment time for backordered items, and customer satisfaction scores. If backorders are increasing quarter over quarter, dig into the root causes — don't just treat it as normal.
How to reduce backorders
If your backorder rate is higher than you'd like, here are practical steps to bring it down:
Improve demand forecasting — Use historical sales data to predict future demand. Even simple moving-average calculations help you stock the right quantities.
Increase safety stock for high-demand items — Identify your top-selling SKUs and increase their buffer inventory.
Diversify your supplier base — Don't rely on a single vendor. If one supplier has a delay, a backup supplier keeps you covered.
Shorten lead times — Negotiate faster delivery with vendors, or source from closer suppliers.
Use [MRP software](/mrp-software) — Material requirements planning automates the calculation of what to order, when to order, and how much — based on your bill of materials, current inventory, and open sales orders.
How Brahmin Solutions can help
Brahmin Solutions is a cloud-based manufacturing platform built for growing manufacturers doing $500K–$50M in revenue. It connects your sales orders, purchase orders, inventory, and production planning in one system — so you can see exactly what's backordered, what's on order from suppliers, and when everything will arrive.
If backorders are becoming a recurring headache, book a demo and see how the platform fits your operation.
Frequently asked questions
What is the meaning of backorder?
A backorder is a customer order for a product that's temporarily out of stock. The customer agrees to wait for the item, and you commit to fulfilling the order once inventory is replenished — either by purchasing from a supplier or manufacturing more.
What are the pros and cons of backordering?
The main advantages are lower carrying costs, less waste, the ability to offer customization, and increased perceived demand. The downsides include customer frustration, delayed revenue, higher operational complexity, and potential brand damage if backorders happen too frequently.
What is a good backorder rate?
A backorder rate below 5% is generally considered acceptable, and below 2% is excellent. Anything above 10% signals a significant inventory planning issue. Calculate it by dividing backordered orders by total orders, then multiplying by 100.
What is the difference between a backorder and a preorder?
A backorder is for an existing product that's temporarily out of stock. A preorder is for a product that hasn't been manufactured or released yet. With a backorder, you know the item exists and your supplier can deliver it. With a preorder, the product may still be in development.
About the author
Brahm Meka is Founder & CEO at Brahmin Solutions.
