What is a Back Order?

A back order is an order that cannot be filled in the usual time expected.

How Does a Back Order Work?

For instance, let’s assume John Doe purchases 10 tractors from a tractor dealer. The retailer has four on hand to ship; it has to wait for the factory to make the rest, which could take three or four months. The six missing tractors are on 'back order,' and John Doe will receive them later.

Why Does a Back Order Matter?

Many companies cannot perfectly predict how quickly products will sell. Though back orders can be an occasional side-effect of just-in-time inventory and other efforts at efficient operations, back orders are usually not great for customer relations -- particularly during the holidays or for products that are big sellers. Some companies measure their back order activity as part of their efforts to analyze inventory and purchasing. After all, a back order might indicate that a company has a product that is selling extremely well, but too many back orders can send customers into the arms of competitors.

In most cases, companies alert customers when products are out of stock and back ordered. Customers then usually have a choice of canceling the order or waiting.

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Paul Tracy
Paul Tracy

Paul has been a respected figure in the financial markets for more than two decades. Prior to starting InvestingAnswers, Paul founded and managed one of the most influential investment research firms in America, with more than 3 million monthly readers.

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