What is a ‘Backlog’

A backlog is a buildup of work that needs to be completed. The term “backlog” has a number of uses in finance; it may refer to a company’s sales orders waiting to be filled or a stack of financial paperwork that needs to be processed, such as loan applications. When a public company has a backlog, there can be implications for shareholders because the backlog may have an impact on the company’s future earnings, as it is unable to meet demand. Next Up Back Order Atlanta Fed Index Foreclosure Filing Delinquent Mortgage

Explaining ‘Backlog’

A backlog is generally a situation that companies want to avoid. However, the presence of a backlog can have positive or negative implications. A rising backlog of product orders might indicate rising sales. On the other hand, it could suggest increasing inefficiency in the production process. Likewise, a falling backlog might be a portentous sign of lagging demand but may also signify improving production efficiency.

How a Backlog Works

Consider a company that sells printed T-shirts. It has the capacity to print 1,000 T-shirts each day. Typically, this level of production is right in line with the demand for the company’s shirts, as it receives approximately 1,000 daily orders, give or take.

Two Types of Backlog Examples

The 2008 housing crisis resulted in a backlog of foreclosures in which lenders had large inventories of residential properties they needed to sell and get off the books. With homes going into foreclosure at a much faster rate than usual, lenders did not have the capacity to process all the foreclosures in a timely manner. In many cases, these lender backlogs resulted in situations where delinquent borrowers were able to remain in their homes for several years without making any mortgage payments. The housing recovery did not begin in earnest until such backlogs were mostly cleared.

Further Reading