how to account for backorders
backorders or a company s backlog may be expressed as a dollar figure as in the value of sales or by the number of units ordered and or sold backorders often require special accounting companies normally inform customers that the product they ve ordered is on backorder when the order is placed and when delivery is expected companies should keep in contact with customers when there is a problem with fulfilling their backorders as promised to ensure orders aren t canceled the sale is then recorded on the company s books as a backorder rather than a completed sale if the customer decides to cancel the order this doesn t affect the company s bottom line and it won t have to reconcile its accounting records the company will then place the order with its manufacturer to deliver the goods once the shipment is received the company will then search for the purchase order and follow through with the delivery the sale can be recorded and then checked off as complete advantages of backordersthe term backorder may conjure up negative images but there can be positives to businesses that have these orders on the books keeping a large supply of stock requires storage space which in turn requires money companies that don t have their own storage centers have to pay for services to hold their inventory by keeping a small amount of stock in supply and the rest on backorder alleviates the need for excess extra storage and therefore reduces costs this cost reduction can be passed on to consumers who will likely return because of a company s low prices this is true when sales and demand for certain products is high especially for new releases of highly popular goods backorders also garner attention and some may be enticed to know more about items that have sold out although this may conjure negative connotations to some others will approach backordered goods as a good thing backordered goods are popular in high demand difficult to get and may appear as a status symbol problems with backordersif a company consistently sees items in backorder this could be taken as a signal that the company s operations are far too lean it may also mean the company is losing out on business by not providing the products demanded by its customers if a customer sees products on backorder and notices this frequently they may decide to cancel orders forcing the company to issue refunds and readjust their books 