Cash on delivery (payment)
Cash on delivery (COD): Meaning, Types & Advantages
If you have experienced the hassle of returning online purchases and waiting weeks for your refund, you will appreciate the simplicity of Cash on Delivery. Discover all you need to know about this payment method in the following article.
What is Cash on Delivery?
Cash on Delivery, also known as "collect on delivery" or "cash on demand," is a payment method in which customers pay for goods upon receipt and deciding to keep them. If the customer chooses not to keep the items, they are returned to the retailer. In this arrangement, the retailer usually covers the cost of shipping because they are unsure whether the customer will pay for the goods upon delivery and must account for potential returns. The sale's completion depends on the delivery of the goods and the customer's payment.
How Does Cash on Delivery Work?
Here is a step-by-step guide for paying with Cash on Delivery:
- Place an Order: The process starts when a customer places an order, either through an online catalog, over the phone, or in-store. Sometimes, customers may be required to pay shipping fees or a deposit upfront, but typically, the payment for the ordered goods is deferred.
- Accept or Return Delivery: Upon order fulfillment, the customer receives the goods through delivery. At this point, they can inspect the items and decide whether to accept or return the delivery based on their satisfaction with the received goods.
- Make or Decline COD Payment: Upon completing an order, the customer receives the goods via delivery. They can then inspect the items and decide whether to accept or return the delivery based on their level of satisfaction with the goods received.
- Select Payment Method: In the case of Cash on Delivery, payment is commonly made in cash. The delivery person receives the payment from the customer, thereby completing the transaction.
- Complete the Sale: The sale is completed when the customer makes the cash on delivery payment, which finalizes the transaction by ensuring they have paid for the goods they intend to keep.
This step-by-step process offers a comprehensive understanding of how Cash on Delivery operates, providing flexibility for customers to assess the goods before making a payment.
What Types of Cash on Delivery Exist?
Cash on Delivery provides multiple payment options to cater to different preferences, such as:
- Mobile Payments: Using mobile card readers, postal workers or delivery staff can process payments via a mobile point of sale (POS) system, which is particularly useful for on-demand services or restaurant deliveries.
- Cash: While the term "cash" is integral to COD, it is not the only accepted method. Couriers may accept cash payments, although this practice is becoming less common due to security concerns for couriers.
- Check: Some merchants accept checks as an alternative to cash. However, there are potential challenges associated with this method, including payment delays, accounting administrative burdens, and the risk of non-payment if the check bounces.
- Online Card Payments: For customers who prefer a longer decision-making period, online card payments are an option. This method offers greater security than checks or cash, with payment processing solutions like Shopify Payments providing a trusted example.
Advantages and Disadvantages of Cash on Delivery
Cash on Delivery has both advantages and disadvantages for businesses and consumers.
On the positive side, in-person COD transactions offer businesses immediate payment for goods and services, streamlining accounting by reducing the number of days accounts receivable are outstanding.
In addition, COD typically ensures shorter delivery times, allowing customers to pay in full when they receive their goods. However, this convenience comes with risks, increasing the likelihood that customers will not adequately plan for payment, resulting in returns, lost profits, and return shipping fees for merchants.
Despite these drawbacks, offering COD builds consumer confidence, which is especially beneficial for new businesses without strong brand recognition. Established businesses often avoid COD risks by opting for credit payment plans with interest and late fees.
However, COD offers benefits by providing merchants with full payment upon delivery, reducing risks associated with identity fraud, stopped payments, or electronic card disputes. In countries like India, COD transactions are contributing to eCommerce growth by appealing to consumers without established credit or alternative payment methods.
On the downside, businesses face a higher risk of goods being refused upon delivery, resulting in return costs. For shoppers, paying on delivery can complicate the return process, as sellers may be reluctant or unwilling to accept returns, leaving dissatisfied consumers with no recourse.
Cash on Delivery: Key Takeaways
- Cash on Delivery (COD) allows customers to pay for their orders in cash at the time of delivery, providing flexibility and the opportunity to inspect the goods before making a payment.
- COD offers various payment options, including mobile payments, cash, checks, and online card payments, catering to different customer preferences and needs.
- While COD provides advantages such as immediate payment for businesses and consumer confidence, it comes with risks like potential returns, lost profits, and return shipping fees.