Cash on Delivery | Full Form of COD, Working and Factors

What is Cash on Delivery (COD)?

In a cash-on-delivery (COD) transaction, the recipient pays cash instead of using credit for the product at the time of delivery. COD doesn’t necessarily require physical cash; thus, it is also known as collect-on-delivery. In this system, depending on a business’s specific policies, cheques and cards are accepted as payment methods.

Cash on Delivery is a way of payment for goods purchased online. Customers can use COD while ordering items from e-commerce platforms and websites and can pay for them after they have received the item. Cash or Debit/Credit Card Payments can be made to the delivery agent. COD service increases the trust between buyers and sellers. For example, this service is provided by Amazon. In this process, sellers either deliver the products themselves or work with a delivery service. The delivery agencies are paid after fees have been deducted; however, this increases costs and lowers the profit of the seller.

Full-Form of COD

COD stands for Cash on Delivery, and it means that payment will be made at the time of delivery with no exceptions. It is a modern payment method designed for online transactions. The buyer orders products and processes payment later, either in cash or by debit/credit card through the delivery agency. Cash on delivery is a payment option that allows customers to pay for their purchases only when they receive them. This method is convenient for customers who are unsure about the quality of the product or have concerns about online payment security.

How does COD Work?

This method of payment is simple. When a consignment is delivered, the delivery agent takes cash from the consignee to pay the bill amount associated with the order. The money is then sent to the local office of the online retailer that sells the products. For both the buyer and the seller, this is one of the simplest, most practical, and most effective payment methods. Additionally, managing money is made simple, and complicated procedures are eliminated, which is more convenient for the seller. Sales proceeds are realised right away, eliminating the chance of payment failure.

Simply put, customers have the option to order anything online and request delivery. Payment is made by the customer upon delivery, rather than during the ordering process. If the goods have been damaged or have been delivered in the wrong way, the buyer has the right to reject the delivery. The placing and carrying out of the order are included in this entire process. Once the product is delivered, the buyer’s payment is handled by the supplier. 

E-commerce businesses usually rely on their internal logistics to transport sold goods and consignments, or they hire a different logistics partner to deliver consignments and collect payments. The consignment is sourced from a supplier once the order is placed with the online retailer. For simple delivery, a prepared invoice and delivery challan are included with the consignment. The logistics company then receives the shipment and the linked invoice to deliver the order to its destination and collect payment. Later on, the delivery person delivers the package to the customer and takes the cash or credit card payment at his door. The delivery agent has a card reader with him for card payments. After receiving payment for the services rendered, the agent deposits the amount received in his office. The logistics provider then transfers the funds to the supplier after deducting handling fees.

Factors affecting COD

Different factors affecting COD are as follows:

1. Convenience: Trading with cash has always been straightforward and easy. Cash payment involves simple transactions.

2. Lack of Secure Payment Gateways: The absence of secure payment gateways puts users at financial risk from online dangers like hacking. Sometimes, it results in the loss of consumer money.

3. Familiarity with Cash Payment: Cash has been the primary mode of payment for a long time and it’s understandable that people are hesitant to switch to newer forms of payment. Even with the introduction of digital payment methods, cash payments are still widely accepted and remain the most convenient option for many people.

4. Less use of Credit/Debit Cards: Credit and debit cards are still not widely used by people in general. Banks impose fees on credit and debit cards, which discourages the use of these payment methods.

Cash on Delivery v/s Online Payment

Cash on delivery is a simple, convenient, and user-friendly payment method that does not require any technical knowledge. With this method, payment is made only after the goods are delivered, making it more reliable and satisfying. Moreover, cash on delivery does not require any financial infrastructure, which makes it accessible to everyone.

On the other hand, making payments online can be quicker, but it requires some level of technical knowledge. However, there is a risk of transaction interruption if the payment gateway stalls or stops functioning. Online payments are more cost-effective for both sellers and buyers as they eliminate the need for a collection agent. Buyers who use online payments can avail of discounts and other incentives. Additionally, given the temporal value of money, today’s money is always worth more than money obtained later.

Advantages of Cash on Delivery

1. Increased Consumer Loyalty and Satisfaction:

Customers who prefer to try products before spending their hard-earned money may do so with less risk with the help of COD, especially when buying products that need to be tried on in various sizes and colours. Offering COD allows customers to experience products without making an upfront purchase, which can be very beneficial to small firms that haven’t yet established a strong brand recognition or reputation. Presenting this option may improve the likelihood that satisfied consumers will continue to support the business because many larger, well-known organisations do not provide COD.

2. Increased Rate of Order Completion:

A COD payment option can be what’s required to encourage customers to successfully complete orders if a company routinely experiences problems with abandoned carts and incomplete orders. They may be more likely to complete the checkout procedure if they do not have to commit to spending money beforehand.

3. Payment Cycles may be Shortened:

When payment is made on delivery (COD), instead of using standard 30 or 60-day invoicing terms, it often leads to shorter delivery times and lowers the Days Sales Outstanding (DSO) metric. This may improve a business’s cash flow.

4. No Chances of Online Frauds:

This is the most safe method of payment because there are no online payment frauds. Customers do not have to use their private financial data in public domains like their bank account, credit card information, and debit card numbers.

5. Easy Payment:

The payment process is made easy and secure with COD. Payment is only made once the product is successfully delivered to the customer, ensuring that the seller does not get stuck with the money. If the product is flawed or damaged, the customer has the right to return it without any additional fee. This way, it ensures a fair and transparent transaction process for both the seller and the customer.

6. No Interference of Third Party:

In this COD system, neither a credit card nor a debit card, nor even a bank account, is required for the customer to make a transaction.

Disadvantages of Cash on Delivery

1. Potential Problems with Cash Flow and Refusals to Pay:

Sellers must wait to get paid when COD is made available as an alternative to paying when ordering. For businesses, this can cause problems with cash flow. Most of the risk involved with sales is also transferred to the seller when goods are delivered on COD, and there is no assurance the seller will ever be paid. Customers can now decline cash on delivery, reducing sales and increasing return costs.

2. Additional Accounting Work:

With COD, the delivery person must frequently collect physical payments, store them securely, and then send them back to the business for processing. COD deliveries that accept cash, checks, and other offline payment methods require a significant amount of manual accounting work, which adds to the hazards of loss and error.

3. Possible Stock-level and Availability Difficulties:

Offering a COD option that enables customers to try on clothing and shoes for a limited period may cause a significant portion of the inventory to be out of stock. Another consumer might be let down if they wanted to order the same products. Customers may become upset and can decide to buy from another store if popular items are regularly out of stock.

4. More Expensive:

Courier firms charge an additional fee when using cash on delivery method. The seller finds it challenging to bear this expense.

5. Suspicious Orders:

Occasionally, someone may post false orders on cash on delivery with the incorrect address in an effort to cause trouble. Losses will result from processing such orders for delivery.