Backorder: what it means and how to handle one
A backorder is a customer order, or part of one, that you have accepted but cannot fill yet because the stock is not on hand. The line stays open and ships when supply arrives. This guide explains what backorder means and how it differs from out of stock and a pre-order. It then covers how to handle a backorder, what to tell the customer and how to cut them.
What does backorder mean?
The ASCM Supply Chain Dictionary defines a backorder as an unfilled customer order or commitment. It is an immediate or past-due demand for an item whose stock cannot cover it.
Merriam-Webster gives the everyday meaning: “a business order yet to be fulfilled because stock is unavailable.” ASCM spells it as one word, backorder. Merriam-Webster spells the noun back order and the verb back-order.
Take a customer PO for 100 units of one item when 40 are on the shelf. You ship 40 now, and the other 60 stay on backorder until supply arrives. Microsoft uses the same numbers to explain partial shipments in Business Central.
A backorder is a narrower thing than a backlog. ASCM defines the backlog as all customer orders received but not yet shipped, including orders that are not due yet. A backorder is the part that is due or past due and short of stock.
Backorder vs out of stock vs pre-order
Four terms get mixed up on order desks and websites. The table separates them.
| Term | What it means | Can the customer order | When it ships |
|---|---|---|---|
| Backorder | An accepted order, or a line of one, that stock cannot fill yet | Yes, and the order is already taken | When supply arrives, on the date you promise |
| Out of stock | No stock on hand to meet demand, which ASCM calls a stockout | Only if you choose to take backorders | After you restock, if you took the order |
| Pre-order | An order for an item before it is available for sale | Yes, ahead of the release | On or after the release date |
| Backlog | All customer orders received but not yet shipped | Yes, these are orders already taken | Each order on its own due date |
The pre-order definition comes from Merriam-Webster, and the others come from ASCM. An item can be out of stock without creating a backorder, if you turn the order away or the customer cancels. An article on backorders that ASCM published makes the same point: accepting an order for an item you do not have is a deliberate decision.
How to handle a backorder
The six steps below start the moment the shortage shows, at order entry or at picking.
Where the date comes from
For a distributor, the date comes from the supplier. Take the confirmed date on the open purchase order and add receiving and transit time. Check that earlier orders do not already claim that receipt.
For a manufacturer, the date comes from the next production run of the item. For an item made to order, it comes from material and machine capacity. Business Central’s order promising covers both cases. Its available-to-promise check uses stock and planned receipts that no other order has reserved, and its capable-to-promise check dates the rest. Both add outbound handling and shipping time to reach a delivery date.
Partial shipment or ship complete?
Some customers want everything in one delivery, to receive once and pay one freight charge. Others want whatever is available now. Store each customer’s choice on their record. In Business Central, the Shipping Advice field on the customer card holds it: Partial allows partial shipments, and Complete blocks them.
That article lists the backorder policies an order system can support. They include all or nothing, a set maximum number of shipments per order, and shipping each item as it becomes available.
What to tell the customer
A backorder notice answers the customer’s questions before they call. The same article lists the moments to write. They include when an item goes on backorder, when you have an inbound date, when the order ships and when a delay occurs.
PO 4471, line 3, item CB-2210 (6-inch swivel caster): 40 of 100 units ship today, and 60 are on backorder.
Our supplier delivers on October 21, and the 60 units ship to you on October 22.
Reply to this email if you prefer another option. We can hold the 40 and ship all 100 on October 22, send item CB-2215 instead, or cancel the 60.
How to cut backorders
Backorders come from demand above plan, supply later than promised, or stock records that do not match the shelf. Each cause has its own fix.
- Measure them first. ASCM defines the backorder rate as the percentage of orders that cannot be filled by the due date. Track it with the line fill rate, the share of order lines filled completely, by item and by customer.
- Set safety stock from real variation. ASCM describes safety stock as stock planned to protect against fluctuations in demand or supply, such as forecast errors or long lead times. The reorder point is usage over the replenishment lead time plus that safety stock. Inventory optimization works out both for each item, with a calculator.
- Forecast the items that run short. A forecast by item, built from your own order history, sets the stock you need before the orders arrive. AI demand forecasting explains the methods and the data they need.
- Track supplier lead times as they happen. Compare each supplier’s confirmed date with the receipt date. A lead time that has grown from six weeks to nine leaves every reorder point for that supplier too low.
- Keep stock records right. A system that shows stock the shelf does not have promises dates you cannot meet. Count stock more often for the items that run short.
- Plan demand and supply together every month. Sales and operations planning puts the forecast, capacity and inventory in front of sales and operations in one monthly meeting.
- Watch the cost in inventory. More safety stock raises days inventory outstanding, so track the two side by side.
Where AI helps with backorders
AI fits the reading and writing around a backorder. It reads the open orders, purchase orders and supplier confirmations in your ERP, then drafts a notice for each affected customer with quantities and dates.
It can also flag the open orders at risk when a supplier moves a date. A person approves each notice before it goes out, as with any message to a customer. Human in the loop sets out which messages need that approval.
For emailed POs, ThriveAI’s order desk automation drafts each order for a person to approve. The sales order guide covers the checks at entry, including the promised date, and order to cash follows the order through to the payment.