Warehousing & Fulfillment
How to Manage Backorders
In this post, we'll share what backorders are, the pros and cons, and best practices for managing them.
If your products are flying off the shelves and you're continually telling your customers that you're sold out, it may be time to start doing backorders.
What is a Backorder?
A backorder is an unfulfilled order that the seller promises the buyer to be fulfilled when available.
It's similar to a pre-order, except, in this case, the product has already launched and is sold out. Just like handling pre-orders, the seller processes the order with the promise of sending the product when it's re-stocked.
The Pros & Cons of Backorders
Some business owners view backorders as guaranteed sales for their business. It's also a better feeling knowing that your products are out-of-stock rather than unsold.
If you have a loyal customer base that is willing to wait for your products, then it's easy to see why you wouldn't mind backorders.
You can also get an idea of which items get back-ordered the most for further inventory and for a marketing scheme and analysis.
However, with backorders, you can't guarantee that the customer will not cancel the order, especially if you don't take advance payment.
If you experience delays from your suppliers, customers can choose to cancel orders, resulting in negative word of mouth.
Missing these sales will impact your revenue, so it's definitely something you want to be careful in managing.
Tips on Backorder Management
Having a good handle on inventory management can help successfully manage backorders.
It's common for sellers not to take payments on backorders when it comes to accepting payments. Instead, they will charge their customers when the item becomes available in their inventory.
But for expensive items or items which you are sure will be delivered on time, taking advance payment is practiced as well.
Communication is also key:
- Be honest with your customers about the estimated timeline for the fulfillment of the backorder.
- That being said, be sure that you're clear on the delivery date and schedule of your supplier and logistics company.
- Keep the customers in the loop and informed throughout the process.
- Make sure your supply chain is all on the same page in case of delay or cancellation of item production.
In conclusion, backorders can either be beneficial or can create problems for you, depending on your approach and the size of your business.
As long as you're organized about it and maintain good communication with your customers and supply chain, you can make it work for you!
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