Are open orders ever considered when estimating the orderly liquidation value of an inventory?

Yes. Open orders or a company’s backlog are often one of the most relevant indicators of future demand that can be considered in valuing a finished goods inventory.

While every inventory is different, items on hand that are ready to be sold and that have been ordered and promised for delivery in the near future are typically the most likely items a customer would accept in a liquidation. The company’s customer may have no alternative near term source, has already planned to purchase, and may need the items in question in order to continue their manufacturing operations or complete a sale to their customers. Additionally, open orders are reviewed to highlight those inventory items that display measurable current demand from the existing customer base.

Typically, with a detailed open order report, it is possible to review the orders for inventory items on hand with delivery dates that fall into a certain time period. A determination of the amount of inventory backed by orders can be completed. In the event of an orderly liquidation, the inventory subject to open orders is often offered to the intended customers at a discount off the agreed upon sales price. Purchasers typically expect the discounts to offset carrying costs associated with purchasing the material in advance of the scheduled shipment date and the lack of payment terms.