What To Know About Cash on Delivery

Cash on delivery, or COD, is a payment method that allows buyers to wait until they receive the goods they have ordered before paying for them.  Offering an option for COD payments presents significant risks to sellers but also brings distinct advantages.  

What To Know About Cash on Delivery
By Pierre Mouchette | Bits-n-Pieces

Cash on delivery, or COD, is a payment method that allows buyers to wait until they receive the goods they have ordered before paying for them.  Also known as collect on delivery, this method does not necessarily require physical cash for payment.  Checks, credit cards, debit cards, and other payment methods are commonly accepted, depending on the business's specific terms.  Offering an option for COD payments presents significant risks to sellers but also brings distinct advantages.  
 
How does COD work?
The COD process starts much like any other sale with a customer creating an order online, over the phone, or in person and providing their name, shipping address, and contact information.  However, unlike conventional shopping methods, COD customers do not pay for their items at the time of the order, and payment is not due until that order is delivered, although sometimes shipping costs or a deposit may be due immediately upon ordering.
 
What types of businesses benefit from COD?
The following are a few business types that COD arrangements have made a difference:

• Dry cleaning and Tailoring - customers typically do not pay for these services until they receive their items.
• E-commerce - many online department stores offer COD for home and kitchen items, electronics, jewelry, apparel, and nutritional supplements.
• Food delivery - paying for groceries or pizza and other food when it arrives at the door has been a successful business model for many decades.

 
Benefits of COD

• Improved customer satisfaction and loyalty - offering COD can benefit new businesses that have not built a robust brand recognition or reputation since customers can get a feel for the product without spending upfront.  Since many larger well-known companies do not allow COD, presenting this option may increase the chances of satisfied customers staying loyal to your business.
  
  
• May increase order completion rate - if your business frequently struggles with abandoned cart issues and incomplete orders, a COD payment option might be needed to motivate customers to complete orders successfully.  Since they do not have to commit to spending money upfront, they may be more likely to go all the way through the checkout process.
  
  
• May shorten payment cycles - when COD is offered as opposed to traditional 30 or 60-day invoicing terms, the result is usually shorter delivery time frames and reduced days of sales outstanding, a metric referred to as DSO. It can boost cash flow for a business.

 
COD downsides
COD delivery also transfers most of the risk associated with sales from the buyer to the seller, and there is no guarantee that the seller will ever get paid.  In addition, with COD, customers are free to change their minds for any reason and refuse delivery, which results in lost profits and the additional cost of shipping merchandise back to you.

• More accounting work - with COD, the delivery driver often has to collect physical payments, store them safely, and return them to your company for processing.  In addition, cash, checks, and other offline payment methods typically accepted during COD deliveries necessitate a good deal of manual accounting work, not to mention the associated risks of losses and errors.
  
  
• Possible cash flow issues and refusals to pay - sellers must wait to get paid when COD is offered as an alternative to paying during the order process.  It could result in cash flow troubles for businesses.