A backlog refers to a pile-up or accumulation of works that are yet to be done. An accumulation of uncompleted tasks is called a backlog. As used in accounting, backlog describes the accumulation of sales orders that a company has, orders waiting to be filled are also included. In finance, a pileup of financial paperwork that are yet to be processed or completed is a backlog.
Excess number of unprocessed jobs or orders waiting to be filled has a number of implications on a company. A backlog could mean that a company has too many orders more than it can meet or the company lacks the capacity to meet demands in the real sense.
A Little More on What is a Backlog
When a department in a company such as the production department has too many orders or workload more than it can execute, a backlog will occur. Also, in finance and accounting, a heap of financial paperwork such as loan applications, debt contracts and others will result in a backlog. The implications of a backlog can be both positive and negative. For instance, a company with a backlog sends a signal to customers that it lacks capacity to meet their demands, thereby inefficient. In the positive sense, it could mean that the company has a lot or orders indicating a rise in sales and demand. A low backlog also indicates decline in orders and demand.
Consider a company that produces rubber sandals and has the capacity of producing a pair of 1,500 rubber sandals daily. If the company releases a new design that catches the fancy of customers, order for the design might increase, exceeding the 1,500 capacity of the company, this means the company would have a backlog. If the company receives 2,500 orders daily more than what it can produce, a backlog will occur unless the company invests more in production to meet the increased demand.
In October 2017, a new version of iPhone was released, iPhone X. This release witnessed an increase in demand as many buyers and smartphone users wanted to purchase the new version of apple phone which was iPhone X. backlog would arise because the demand for the phones and week-long pre-orders are beyond the capacity at which the company can produce. This similar case happened after Apple debuted its watch product in 2015.
Another example is the 2008 housing crisis that resulted in a backlog of foreclosures, mortgage lenders had too much properties that needed to sell at this time, there was a backlog of housing inventory.
Here are the major things to note:
- A company’s sales order waiting to be filled is a backlog. Demands that are yet to be met is also backlog.
- A hedp of financial papers that are yet to be attended to is a backlog.
- A backlog can have implications on the future earnings of a company.
- A backlog can indicate the inability of a company to meet demands and orders.
- A backlog has both negative and positive implications on a company.