Best Practices for Backorder Fulfillment and Payment Capture

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Dharmendra Patri

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Best Practices for Backorder Fulfillment and Payment Capture

10/06/2020 Categories: ARTICLES

Having a ton of backorders is what we call a “champagne problem.” It means your products are well received by your customers, and sales are so high that you’re struggling to keep up with demand. Keep in mind though that even a “good” problem is still a problem, and in this case, you are losing sales and potentially life-long customers due to out of stock items. Unless you have completely cornered the market, if you can’t meet their demand initially, they will generally abandon you for your competition. There will be some customers willing to place an order even when the product is out of stock and will wait until you restock. This process of enabling customers to purchase out-of-stock products is called backordering. When the quantity of backorders becomes a significant issue for you, and you are continuously unable to fulfill customer orders, here are some basic do’s & don’ts to follow to address the problem.   DOs DO plan how you will fulfill backorders in detail. Forecast product availability as best you can, then specify which products to place as backorders based on how well you can fulfill them in the future. DO inform customers immediately that the product is currently out of stock and will be placed as a backorder. You can automate this process on most eCommerce platforms, including BigCommerce and Magento.   DO notify customers about the lead time for fulfilling a backorder and make sure to tell them that the lead time is tentative. DO keep your customers notified if there is any delay fulfilling a backorder using emailed order notifications or your customer service team’s preferred method of communication.  DON'Ts DON’T allow backorders for all items in your webstore without accounting for how you will fulfill them.  DON’T keep the customer waiting on their delivery without updates. DON’T assume that all customers know what backorders are and how you plan to address the issue. Explain as quickly and calmly as possible what the issue is, apologize, and offer them a discount to make up for the delay in their order DON’T charge them transaction or processing fees for the items that you could not fulfill. Payment Processing and Capturing When executing backorders, the vital question is this: how and when will you process the payment? Here’s what you should NOT do: charge the customer’s payment card for a backorder, then wait a couple of weeks before letting them know that you can’t fulfill it. It’s a massive waste of the customer’s time and delays when you will need to kick off the process of issuing a refund.  Your business could also get hit on transaction fees for both the purchase and refund. Here are our recommended best practices for handling backorder payments. Always select Authorize and Capture as the payment mechanism if you want to collect the payment online. Paying using credit terms is an industry norm and is one of the preferred ways of making payment for backorders. For B2B

Keep in mind though that even a “good” problem is still a problem, and in this case, you are losing sales and potentially life-long customers due to out of stock items. Unless you have completely cornered the market, if you can’t meet their demand initially, they will generally abandon you for your competition.

There will be some customers willing to place an order even when the product is out of stock and will wait until you restock. This process of enabling customers to purchase out-of-stock products is called backordering.

backorders image

When the quantity of backorders becomes a significant issue for you, and you are continuously unable to fulfill customer orders, here are some basic do’s & don’ts to follow to address the problem.  

DOs

  • DO plan how you will fulfill backorders in detail. Forecast product availability as best you can, then specify which products to place as backorders based on how well you can fulfill them in the future.
  • DO inform customers immediately that the product is currently out of stock and will be placed as a backorder. You can automate this process on most eCommerce platforms, including BigCommerce and Magento.  
  • DO notify customers about the lead time for fulfilling a backorder and make sure to tell them that the lead time is tentative.
  • DO keep your customers notified if there is any delay fulfilling a backorder using emailed order notifications or your customer service team’s preferred method of communication. 

DON'Ts

  • DON’T allow backorders for all items in your webstore without accounting for how you will fulfill them. 
  • DON’T keep the customer waiting on their delivery without updates.
  • DON’T assume that all customers know what backorders are and how you plan to address the issue. Explain as quickly and calmly as possible what the issue is, apologize, and offer them a discount to make up for the delay in their order
  • DON’T charge them transaction or processing fees for the items that you could not fulfill.

money magnet

Payment Processing and Capturing

When executing backorders, the vital question is this: how and when will you process the payment? Here’s what you should NOT do: charge the customer’s payment card for a backorder, then wait a couple of weeks before letting them know that you can’t fulfill it. It’s a massive waste of the customer’s time and delays when you will need to kick off the process of issuing a refund.  Your business could also get hit on transaction fees for both the purchase and refund.
Here are our recommended best practices for handling backorder payments.

  • Always select Authorize and Capture as the payment mechanism if you want to collect the payment online.
  • Paying using credit terms is an industry norm and is one of the preferred ways of making payment for backorders.
  • For B2B customers, you can require payments using credit terms with a credit limit.

While offline payments are a reliable way to deal with backorders, online is a different story. There are individual requirements you need to fulfill to collect payments online using Authorize and Capture. 
Here are the crucial questions you need to ask when choosing a payment gateway partner for processing payments in Authorize and Capture mode:

  • Does the payment gateway partner allow partial capture or a full capture?
  • If it does not allow partial capture (which is the case with many), does it allow reauthorization and recapture?

The frequent situation with backorders is that if an order contains multiple line items, you may have certain items available earlier for shipment. Here’s a great example: an order will include two line items that you can immediately fulfill and 1 line item that is backordered with a lead time of two weeks.

When you have fully authorized the amount of the complete order, you need to capture payment for the entire authorized amount before shipping the two items that are in stock. If invoices are generated, your eCommerce platform should automatically connect with your payment gateway and send a request to capture the partial amount. The next time you have the other backordered items in stock, you can issue invoices for that item. The eCommerce application will then need to reauthorize and capture the rest of the amount. If your payment gateway supports it, configure a partial capture on the existing authorization.

warning sign

Be Aware of Payment Capture Failure Scenarios

Be warned that reauthorization and capture/partial capture could fail in the circumstances listed below:

  • The credit card or debit card of the customer was active when you authorized the amount, but it expired before you began doing a reauthorization and capture.
  • You have made changes to the order based on the customer’s request, and the order amount is higher than the funds that are available on the card.

There is no easy way to avoid those scenarios. We strongly recommend merchants initiate shipments only after creating an invoice and successfully charging the card. You could also have a legal contract in place with your B2B customers to handle such cases with offline payments.

warehouse

Final Note

Customers don’t expect you to be perfect. They do expect you to fix things when they go wrong.” 

This quote from British Airways Vice President Donald Porter summarizes our concept of backorders and fulfillment. Backorders can drive additional revenue but will also create a few uncomfortable situations in which you are unable to fulfill some of the backorders. Be proactive with customer communication and handle customer concerns in a profoundly positive way. Planning and managing your backorders and customer expectations will go a long way towards increasing customer goodwill and boosting sales.

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Body

Having a ton of backorders is what we call a “champagne problem.” It means your products are well received by your customers, and sales are so high that you’re struggling to keep up with demand. Keep in mind though that even a “good” problem is still a problem, and in this case, you are losing sales and potentially life-long customers due to out of stock items. Unless you have completely cornered the market, if you can’t meet their demand initially, they will generally abandon you for your competition.

There will be some customers willing to place an order even when the product is out of stock and will wait until you restock. This process of enabling customers to purchase out-of-stock products is called backordering.

backorders image

When the quantity of backorders becomes a significant issue for you, and you are continuously unable to fulfill customer orders, here are some basic do’s & don’ts to follow to address the problem.  

DOs

  • DO plan how you will fulfill backorders in detail. Forecast product availability as best you can, then specify which products to place as backorders based on how well you can fulfill them in the future.
  • DO inform customers immediately that the product is currently out of stock and will be placed as a backorder. You can automate this process on most eCommerce platforms, including BigCommerce and Magento.  
  • DO notify customers about the lead time for fulfilling a backorder and make sure to tell them that the lead time is tentative.
  • DO keep your customers notified if there is any delay fulfilling a backorder using emailed order notifications or your customer service team’s preferred method of communication. 

DON'Ts

  • DON’T allow backorders for all items in your webstore without accounting for how you will fulfill them. 
  • DON’T keep the customer waiting on their delivery without updates.
  • DON’T assume that all customers know what backorders are and how you plan to address the issue. Explain as quickly and calmly as possible what the issue is, apologize, and offer them a discount to make up for the delay in their order
  • DON’T charge them transaction or processing fees for the items that you could not fulfill.

money magnet

Payment Processing and Capturing

When executing backorders, the vital question is this: how and when will you process the payment? Here’s what you should NOT do: charge the customer’s payment card for a backorder, then wait a couple of weeks before letting them know that you can’t fulfill it. It’s a massive waste of the customer’s time and delays when you will need to kick off the process of issuing a refund.  Your business could also get hit on transaction fees for both the purchase and refund.
Here are our recommended best practices for handling backorder payments.

  • Always select Authorize and Capture as the payment mechanism if you want to collect the payment online.
  • Paying using credit terms is an industry norm and is one of the preferred ways of making payment for backorders.
  • For B2B customers, you can require payments using credit terms with a credit limit.

While offline payments are a reliable way to deal with backorders, online is a different story. There are individual requirements you need to fulfill to collect payments online using Authorize and Capture. 
Here are the crucial questions you need to ask when choosing a payment gateway partner for processing payments in Authorize and Capture mode:

  • Does the payment gateway partner allow partial capture or a full capture?
  • If it does not allow partial capture (which is the case with many), does it allow reauthorization and recapture?

The frequent situation with backorders is that if an order contains multiple line items, you may have certain items available earlier for shipment. Here’s a great example: an order will include two line items that you can immediately fulfill and 1 line item that is backordered with a lead time of two weeks.

When you have fully authorized the amount of the complete order, you need to capture payment for the entire authorized amount before shipping the two items that are in stock. If invoices are generated, your eCommerce platform should automatically connect with your payment gateway and send a request to capture the partial amount. The next time you have the other backordered items in stock, you can issue invoices for that item. The eCommerce application will then need to reauthorize and capture the rest of the amount. If your payment gateway supports it, configure a partial capture on the existing authorization.

warning sign

Be Aware of Payment Capture Failure Scenarios

Be warned that reauthorization and capture/partial capture could fail in the circumstances listed below:

  • The credit card or debit card of the customer was active when you authorized the amount, but it expired before you began doing a reauthorization and capture.
  • You have made changes to the order based on the customer’s request, and the order amount is higher than the funds that are available on the card.

There is no easy way to avoid those scenarios. We strongly recommend merchants initiate shipments only after creating an invoice and successfully charging the card. You could also have a legal contract in place with your B2B customers to handle such cases with offline payments.

warehouse

Final Note

Customers don’t expect you to be perfect. They do expect you to fix things when they go wrong.” 

This quote from British Airways Vice President Donald Porter summarizes our concept of backorders and fulfillment. Backorders can drive additional revenue but will also create a few uncomfortable situations in which you are unable to fulfill some of the backorders. Be proactive with customer communication and handle customer concerns in a profoundly positive way. Planning and managing your backorders and customer expectations will go a long way towards increasing customer goodwill and boosting sales.

Tags