Loading the player...

What is a 'Backlog'

A backlog is a buildup of work that needs to be completed. The term "backlog" has a number of uses in accounting and finance; it may, for example, refer to a company's sales orders waiting to be filled or a stack of financial paperwork, such as loan applications, that needs to be processed. When a public company has a backlog, there can be implications for shareholders because the backlog may have an impact on the company's future earnings, as having a backlog could suggest the firm is unable to meet demand.

BREAKING DOWN 'Backlog'

The term backlog is used to indicate the existing workload that exceeds the production capacity of a firm or department, often used in construction or manufacturing. The presence of a backlog can have positive or negative implications. For example, a rising backlog of product orders might indicate rising sales. On the other hand, companies generally want to avoid having a backlog as it could suggest increasing inefficiency in the production process. Likewise, a falling backlog might be a portentous sign of lagging demand but may also signify improving production efficiency. Naturally, unexpected backlogs can compromise forecasts and production schedules.

How a Backlog Works

Consider a company that sells printed T-shirts. It has the capacity to print 1,000 T-shirts each day. Typically, this level of production is right in line with the demand for the company's shirts, as it receives approximately 1,000 daily orders, give or take.

One month, the company unveils a new T-shirt design that quickly catches on among college students. Suddenly, it is receiving 2,000 orders per day, but its production capacity remains at 1,000 shirts per day. Because the company is receiving more orders each day than it has the capacity to fill, its backlog grows by 1,000 shirts per day until it raises production to meet the increased demand.

Backlog Examples

When Apple debuted the iPhone X, a 10th anniversary edition of the iPhone, in October 2017, overwhelming initial demand for the phone created a weeks-long backlog on pre-orders. Apple was forced to delay shipments to late November and then again to December for customers pre-ordering the phone upon launch. Many criticized the backlog as an example of poor sales forecasting by Apple, which saw a similar situation happen when the firm debuted its Apple Watch product in 2015.

The 2008 housing crisis resulted in a backlog of foreclosures in which lenders had large inventories of residential properties they needed to sell and get off the books. With homes going into foreclosure at a much faster rate than usual, lenders did not have the capacity to process all the foreclosures in a timely manner. In many cases, these lender backlogs resulted in situations where delinquent borrowers were able to remain in their homes for several years without making any mortgage payments. The housing recovery did not begin in earnest until such backlogs were mostly cleared.

RELATED TERMS
  1. Foreclosure

    Foreclosure is the process through which a lender seizes and ...
  2. Back Order

    A back order generally indicates that customer demand for a product ...
  3. Capacity Management

    Capacity management is the management of the limits of an organization's ...
  4. Foreclosure Action

    The legal proceedings initiated by a lender in the case of mortgage ...
  5. Excess Capacity

    Excess capacity occurs when a firm's actual production is less ...
  6. Capacity Cost

    A capacity cost is an expense incurred by a company or organization ...
Related Articles
  1. Investing

    3 Things to Watch When Seadrill Reports (SDRL, SDLP)

    After an awful 2014, Seadrill (NYSE: SDRL) has kept its head above water in 2015, as its stock is up a little more than 11%. More gains could be on the way if the company reports stronger than ...
  2. Investing

    Boeing Flies Toward Double-Digit Growth: Jefferies

    'Robust demand' for commercial aircrafts should drive EPS growth into the double digits.
  3. Investing

    Early Contract Termination Leaves Transocean in Rough Waters (RIG)

    Reliance Industries exercised the option to terminate their contract with Transocean Ltd. for the deepwater drillship, Discoverer India, effective in December 2016.
  4. Investing

    Don't Get Trapped in a Zombie Foreclosure

    Understand how foreclosures work and you can avoid the disastrous consequences of having a zombie foreclosure.
  5. Investing

    Better Buy: Enterprise Products or Kinder Morgan (EPD, KMI)

    Today, Kinder Morgan (NYSE: KMI) and Enterprise Products Partners (NYSE: EPD) are far and away the largest companies in the pipeline and processing business under one corporate entity. These ...
  6. Investing

    The 6 Phases Of A Foreclosure

    For many, foreclosure is still a real possibility. Make sure you're prepared and know the steps.
  7. Investing

    Saving Your Home From Foreclosure

    Learn the tactics you can use to prevent your home from being repossessed.
  8. Investing

    How To Delay Foreclosure

    While losing a home can be a traumatic event for you and your family, it's best to find ethical means of delaying or avoiding foreclosure, even if it takes more time.
  9. Investing

    Public Homebuilding Companies Poised For Gains

    The homebuilding sector is benefiting from the economic recovery and pent-up demand. The top public homebuilders have all seen their prospects improve.
RELATED FAQS
  1. How Many Mortgage Payments Can I miss Before Foreclosure?

    The status of your lender and the condition of your local housing market are some of the factors that determine how many ... Read Answer >>
  2. Understanding the Five Cs of Credit?

    Learn how the five C's of credit affect new credit application decisions, and understand how a lender analyzes each aspect ... Read Answer >>
Hot Definitions
  1. Inflation

    Inflation is the rate at which prices for goods and services is rising and the worth of currency is dropping.
  2. Discount Rate

    Discount rate is the interest rate charged to commercial banks and other depository institutions for loans received from ...
  3. Economies of Scale

    Economies of scale refer to reduced costs per unit that arise from increased total output of a product. For example, a larger ...
  4. Quick Ratio

    The quick ratio measures a company’s ability to meet its short-term obligations with its most liquid assets.
  5. Leverage

    Leverage results from using borrowed capital as a source of funding when investing to expand the firm's asset base and generate ...
  6. Financial Risk

    Financial risk is the possibility that shareholders will lose money when investing in a company if its cash flow fails to ...
Trading Center