What is Cash on Delivery(COD)? A Detailed Explanation for Online Sellers

What is cash on delivery or COD?

Before entering this topic, I want to ask you a question. Have you ever ordered a pizza or other food online and paid for it when it is delivered at door? I believe you probably have had such an experience. It is a good example of cash on delivery.

Well, if I’m wrong, in this article, you will get a detailed explanation for this term.

Let’s get started!

What does cash on delivery mean

Cash on delivery (COD) is also called “cash on demand”. It is a well-known payment method on some online selling platforms, like Shopee. However, paying with COD is not only paying by cash. The term COD also stands for “collect on delivery”. The customer can pay with physical cash, checks, credit cards, debit cards, or other payment methods upon the delivery of the order.

Example of cash on delivery

Many industries now use cash on delivery (COD) as a payment method. Here are two examples:

• Food Delivery: The most common use of COD. Services like Uber Eats and DoorDash offer this option.
• E-commerce: COD can build trust between sellers and buyers. Popular shopping sites like Amazon, Temu, and eBay accept COD as a payment method.

How does cash on delivery work

Generally, cash on delivery works as follows.

1. The customer orders a product online with COD payment and submits shipping information to the seller.
2. The seller prepares the order and works with a courier like USP or USPS to deliver the product.
3. The customer (recipient) pays the courier with cash or other methods when the product is delivered.
4. The courier transfers the sales revenue of the order to the seller after deducting shipping costs and service fees.

Pros and cons of cash on delivery

As one of the payment options, cash on delivery has its advantages and disadvantages for both the seller and the customer.

For the seller

Pros

Increase impulse purchases With cash on delivery, customers don’t need to pay immediately when the order is placed. That could increase impulse purchases. And the more they buy, the more likely they are to keep your product.

Build a wider customer base Cash on delivery service makes it possible for customers who have no credit or debit cards to shop online. So if this method is accepted in your store, you are more likely to build a wider customer base.

Boost customer satisfaction COD allows customers to check the product quality before they pay for it. That means they can be sure if they are satisfied with the order before it is completed. Therefore, with this payment method taken, there could be fewer negative reviews or complaints about your products or services.

Build trust with customers Usually, customers are suspicious about the security of the website of a new brand. But with cash on delivery, there is no risk of loss for them so they are willing to buy from you. And they can check for the product before they spend money. These will help build trust with the customers and offer a chance to increase sales.

Cons

Capital flow problems When customers pay at the delivery of an order, the seller cannot get the return from his investments in the product promptly. As a result, the seller could be stuck in a capital flow problem.

Refusal to pay In the COD model, the order is not completed until the customer is determined to keep the product and pay for it. So there is a chance that the customer regrets placing the order and refuses to pay for it when the product is delivered. Then this will result in a loss on the shipping fee for the seller.

Increased work Accepting COD as a payment gateway means the seller has to check the fund transferred to his bank account from the courier. Also, the seller needs to call or text the customer if the courier fails to deliver the product two or more times. All of these will increase the load on the seller.

Potential out-of-stock problem Cash on delivery takes the burden of paying before receiving a product from the customer’s shoulder. They may buy shoes or apparel in various colors or sizes to pick the best fit. Consequently, your goods could be out of stock quickly.

For the customer

Pros

Order first and pay later Cash on delivery allows consumers to order first and pay later. In this case, customers can buy something in need even if they don’t have enough money at hand.

Check the product before payment Before paying by cash on delivery, customers can check if the product is what they expect. For example, they can check product quality, product appearance, packaging status, etc. In this way, customers themselves measure whether the product is worth buying.

Fewer payment frauds When the customer receives the order, cash will be collected directly without bank card information provided. Thus, there is less potential for payment fraud.

Free from bank cards or digital wallet For those who are very sensitive about their privacy, paying by cash on delivery will provide them with one more choice. In this method, they don’t need to provide card information or register and deposit in a digital transaction website like PayPal.

Cons

Inconvenient to pick up the package If customers opt for payment upon delivery, then they need to pick up the parcel on time. Once missing the delivery time, they have to contact the courier and negotiate the time again. Sometimes, an additional service fee will be charged on this occasion.

Should you add cash on delivery to your payment methods

The advantages of cash on delivery outweigh its disadvantages from our analysis above. Except for that, the term “cash on delivery” shows an overall increase in popularity on Google Trends in the past decade. It suggests that consumers are interested in this payment method and could be looking to try it.

Therefore, we recommend you add COD as a payment choice at checkout in your store.

To make the most of this payment method, here are some tips for your reference.

Confirm orders with your customer before delivery

More often, customers place duplicated orders or order items with unwanted features by accident. And someone may not want what they order for some reason a few days later. So you had better check and confirm the order with your customer before dispatching the package to the courier. This is good for avoiding waste of shipping costs and refusal on delivery.

Work with a reliable logistics company

To a seller who offers cash on delivery services, the logistics company plays an important role. The courier not only delivers the package but also collects money from your customers on your behalf. How long it takes for delivery affects your cash flow. And whether the courier is responsible and honest could impact your income and customer satisfaction.

Limit on where and who COD is available to

The customer reject rate varies in different locations and age groups. It could be higher in a remote region and a certain group of people. Hence, you had better put a limit on where and who your COD service is available after you get related data from your store.

Conclusion

Cash on delivery as a payment method can bring both sellers and buyers benefits and risks. But overall, it is beneficial to a business with some tactics adopted.

What do you think of it? You may let us know your opinion in the comment.