Backorder

What is Backorder? 

Backorder is a situation whereby customers are allowed to purchase unavailable stocks. Simply put backorder means more orders than the available stock. In a backorder,  a customer makes his or her request for the stock, this request becomes an outstanding order. Backorder is a clear indication that the demand for some goods exceeds the supply of such goods. It is very popular in the retail business

Most times backorder occurs when the item might not be available but is in production or the company is on the process of manufacturing more of the products ordered. Backorder might also be referred to as a backlog.

Determining How Long It Takes To Take Care Of A Backorder

There are two basic factors that determined how long a backorder would take to be attended to.

• The nature of the backorder

• The number of backorders.

In the backorder, the greater the rate of goods ordered, the more time it takes to meet up with the order.

How Does Backorder Works?

Generally, the backorder represents customers' stock that had already been ordered but has not been delivered because it is not available. It is important to note that whether or not a company operates a supply of inventory does not affect their ability to operate a backorder. In fact, using backorders for demands helps retain customers, boost demand and maintain the value of the company or business organization.

Therefore, backorder is very important in a company's inventory management analysis. This is because the number of items that have been ordered and the duration it takes to deliver the customers' demand gives insight into a company's ability to manage its inventory. On the one hand, when the number of items ordered is relatively manageable and the company supplied within the stipulated time, it shows that the company is doing well. On the other hand, the longer it takes to meet up with a backorder and the number of backorders can affect the company's image.

How To Account For Backorder.

There are two major easy to account for a backorder:

• Accounting by the number of units ordered

• Accounting by the value of sales

Whichever ways it is accounted, the company are expected to inform their customers that the product they ordered is in backorder. The company is also required to provide the time the product would be available to the customers.

When a company could not meet up with the date the order is to be supplied, it is expected that they notify the customers.

Problems Of Backorder

• If items are always on a company backorder, it might suggest that the company's operation is not very effective.

• It might also suggest that the company would lose its customers by constantly keeping them on backorder. This is because customers whose request is constantly filled as a backorder might be tempted to look elsewhere for his or her product. This could lead to the eventual loss of such customers as they get frustrated with the company's lack of available products.