DEFINITION of 'Backorder'

A backorder is an order for a good or service that cannot be filled at the current time due to a lack of available supply. The item might not be held in the company's available inventory but could still be in production. Or, the company might need to still manufacture more of the product. The nature of the backorder and the number of items on backorder will affect the amount of time it will take before the customer can eventually receive the ordered product. The higher the number of items backordered, the higher the demand for the item.


Backorders are an important factor in inventory management analysis. If a company consistently sees items in backorder, then this could be taken as a signal that the company is running too lean and that it is losing out on business by not providing the products demanded by its customers. When an item is on backorder, a customer might be looking elsewhere for a substitute product, especially if the expected wait time until the product becomes available is long. This can provide an opportunity for once loyal customers to try other companies' products and potentially switch. Difficulties with proper inventory management can lead to eventual loss of market share as customers become frustrated with the company's lack of product availability.

  1. Backorder Costs

    A cost incurred by a business when it is unable to fill an order ...
  2. Back Order

    A back order generally indicates that customer demand for a product ...
  3. Inventory Accounting

    Inventory account is the body of accounting that deals with valuing ...
  4. Excluding Items

    The common practice of leaving certain factors out of an overall ...
  5. Business Inventories

    Business inventories is an economic figure that tracks the dollar ...
  6. Inventory Management

    Inventory management is the process of ordering, storing and ...
Related Articles
  1. Personal Finance

    5 Avoidable Shopping Mistakes

    By avoiding these common shopping mistakes, you may be able to save your hard-earned dollars and get more bang for your buck.
  2. Investing

    Key Financial Ratios for Restaurant Companies

    These seven financial ratios provide insight to the profitability of a restaurant, prospective longevity of the business and quality of decisions being made.
  3. Personal Finance

    How To Use Price Adjustments To Get The Best Deals

    We take a look at 6 top retailers' price adjustment policies, and tell you how to get your money's worth.
  4. Personal Finance

    Supply Chain Management Jobs Are Booming

    There has been huge growth in supply chain management, both in the number of positions open and the range of responsibilities assigned to those positions.
  5. Personal Finance

    How The Auction Market Works

    Here's a look into the online auction market and how to get yourself the best value possible on sites like eBay and Quibids.
  6. Small Business

    Turn Your Old Clothes Into Cash

    If your closet is full of clothes you don't wear, use these tips to make some money (and some room) quickly and easily.
  7. Investing

    How To Decode A Company's Earnings Reports

    Read between the lines to decipher a company's true financial condition.
  8. Investing

    Understanding Periodic vs. Perpetual Inventory

    An overview of the two primary inventory accounting systems.
  9. Investing

    Vital Link: Manufacturing And Economic Recovery

    Manufacturing output is one of the clearest signs that an economy is recovering from a recession.
  10. Insights

    How To Shop At Wholesale Retailers

    Have a plan and think twice before you venture through the sliding glass doors.
  1. What is the difference between cost and price?

    Consider how cost affects a product's price. Corporate expenses and the current cost of living both impact the final sticker ... Read Answer >>
  2. Should a small business test the substitution effect on its products before launch?

    Explore the substitution effect and find out how small businesses may evaluate how this principle impacts their own products. ... Read Answer >>
  3. Is good customer service something to look for in a company in which I am considering ...

    Learn about the importance of customer service when deciding whether to invest in a stock. Good customer service can ensure ... Read Answer >>
  4. What does days sales of inventory (DSI) represent as a ratio?

    Discover what the days sales of inventory (DSI) ratio represents for traders or market analysts and how this ratio is used ... Read Answer >>
  5. What is the difference between JIT (just in time) and CMI (customer managed inventory)?

    Understand the principles behind just-in-time inventory management and customer-managed inventory. Learn the difference between ... Read Answer >>
Hot Definitions
  1. Entrepreneur

    An Entrepreneur is an individual who founds and runs a small business and assumes all the risk and reward of the venture. ...
  2. Money Market

    The money market is a segment of the financial market in which financial instruments with high liquidity and very short maturities ...
  3. Perfect Competition

    Pure or perfect competition is a theoretical market structure in which a number of criteria such as perfect information and ...
  4. Compound Interest

    Compound Interest is interest calculated on the initial principal and also on the accumulated interest of previous periods ...
  5. Income Statement

    A financial statement that measures a company's financial performance over a specific accounting period. Financial performance ...
  6. Leverage Ratio

    A leverage ratio is any one of several financial measurements that look at how much capital comes in the form of debt, or ...
Trading Center