Backordering is a process that allows customers to place an order even if the product is out of stock. These orders cannot be shipped or filled immediately. Items that pass through this backorder process are known as back-ordered items.
Backorder is a type of agreement between a company and a customer that includes a shipping date. The customers verify the shipping date and agree to wait for their order. Visually, the backorder process can be described as:
Understanding backorders
Backorders help businesses by maintaining customer satisfaction and increasing sales. In backorders, the customers are willing to wait for a particular product.
For example, a retail business has a top product that generates high revenue. From ABC supplier, he is purchasing this product at $10 per piece. On the other hand, XYZ’s supplier sells the same product with the same features for $8, but this supplier needs some time to manufacture it. XYZ suppliers assure you that this product will be shipped in 8 to 10 working days.
To save money, the retail business owner will wait and place backorders to the XYZ supplier.
Backorder vs. Out of stock
Sometimes people get confused between backorder and out of stock. They are different terminologies for different situations.
In a backorder, the products will arrive at a defined date. But in out of stock, there is no confirmed date or time for the resupply. In other words, items available for backorder usually say, “This product will be available in 1 or 2 weeks”. Whereas out of stock items usually just say, “This product is currently unavailable”.
Hope is sometimes associated with a back-ordered item. You can predict the resupply date to assure a customer.
Why is backordering important?
Whether its during sales, black Fridays, or closeouts, backorder is the best technique for businesses. Let’s assume you have some top products in high demand. Your products’ stock level is decreasing immediately. Now, what will you do? Will you stop receiving orders, or will you make a strategy to accommodate your loyal customer’s demands?
Most businessmen will definitely prefer to maintain their brand value by accommodating customers’ demands. This can be done only by allowing your valued customers to place backorders. You can accept backorders by informing your customers that you will soon restock the required products at a specified time.
How does it support your business?
Keeping products on backorder will help boost demand, retain and increase the customer base, and create value for their products.
Backordering is all about customer service
Adopting the backorder technique will increase your sales, but it makes customers anxious. After all, they will have to pay for the product in advance and there is no assurance that they will receive their order or not. Here, purchase orders can give some relaxation to customers.
If you are offering backorder, you must keep in touch with your customers. If any delay happens, notify your customers first. Communication is the key to success.
Summing up
Backordering can have a negative impact on a company if managed inappropriately. This is where using an effective inventory management system will prove invaluable. But which one can handle backorders in a systematic way you may ask? We recommend going with SeeBiz Inventory.
Well-managed backorders can be helpful for a company. They are an indicator of your brand value.
Backorders show how dominant your company is in the market. People can tell that this company has some unique factors as customers are willing to wait for their products.
Frequently Asked Questions
How long does a backorder take?
It depends on the company. Usually, 14 days are required for a backorder. Sometimes it depends on the product, product quantity, and demands as well.
What is a back-ordered item?
The ordered item that is out of stock but will soon be available is known as a back-ordered Item.
Can you cancel a back-ordered item?
A cancellation request’s acceptance depends on the company’s terms and conditions. As you have paid in advance for the items, the company might reject your request or deduct some of your money.
What is a backorder cost?
Backorder cost occurs when a business cannot deliver the backorder on the date defined at the time of order. Backorder cost is like a penalty to the company and occurs when the customer receives the product after a specified date.
