Agosh Baranwal | Jan 19, 2021 12:00:00 AM |

Advantages and disadvantages of Cash on Delivery payment option

‘Cash on Delivery’ has been a sensitive topic in the e-commerce industry. It was pioneered and now is the most widely used model in India. The overwhelming majority of e-shopping transactions in the Middle East are COD. 60% of online transactions in the UAE and the Middle East are done by cash on delivery and this has also led to the growth of courier companies offering a COD service. But even now, an e-commerce business owner would want to skip on providing their customers with this feature intentionally due to many reasons, namely - vulnerability to losses on returns, delay in the amount being credited to seller’s account, etc.

Of course, there are advantages to COD too like trust-building with customers and easier order placement but are they worth the extra efforts from the e-commerce owner’s end? Online payment options and fast bank transfers might cause the business to question whether it makes sense to offer the option for cash on delivery to customers. Spoiler alert - we do have a strong view and suggestion on this topic for you. Here we are going to explore the advantages and disadvantages of cash on delivery and what our views are on the same, so hold tight!

Why businesses offer Cash on Delivery:

New businesses can benefit from offering COD if they are still becoming established. This helps to show reliability to the customer, ensuring that their order will be fulfilled and only requesting payment at that time. A customer base without credit cards or sufficient funds in a bank account can also opt for COD. In other words, if a customer has cash but not the possibility to pay online, this option means they can still complete a sale. It can also be useful for customers who might be mistrustful of online payments.

How is Cash on Delivery perceived today?

ECommerce companies, popular shopping websites and other online stores allow this facility for several reasons. For example, one may use COD sometimes when buying stuff online. Or while placing an order on phone with a neighborhood grocery. This brings us to the question, what are the benefits of COD? Are there any genuine benefits at all? After all, we will pay for the goods either before or after they arrive. And secondly, some companies may charge an extra “convenience fee” for providing the COD facilities, which can go as high as eight to 10 per cent of the total value of our shopping.

And what happens if we’re not there to take delivery because nobody else would pay for the stuff? Obviously, these are questions we might sometimes ask ourselves. However, there are definitely a lot of benefits of ordering goods on cash on delivery.

Advantaged of Cash on Delivery (COD) payment mode:

1. Attracts a wider customer base: As mentioned before, for the customers, one of the biggest advantages of COD is that they can pay for a product only after an e-commerce courier service delivers it to them. This has made COD an immensely popular payment mode among Indian online shoppers. In order to exploit this wider customer base, it is important to offer COD payment mode for all your orders.

2. Builds customer trust: Since with COD payment mode the customers do not have to pay for their products in advance, there is no risk of loss of their money. This increases the trust that the customer has with your brand. Moreover, the customer can personally check the product and ensure that everything is exactly the way it was expected before making the payment. In case the e-commerce courier service delivers a different product or a defective product, the customer can easily return it without making the payment.

3. No dependency on electronic payment: Another major advantage for customers on using cash on delivery payment mode is that it does not make you dependent on debit cards and credit cards. This is an advantage for customers from suburban and rural regions where a lot of people do not use these cards. In these places, most customers prefer simple transaction processes - receive the product, check the product and then make the payment. 

4. Security of sensitive data: With cash on delivery payment mode, security can be maintained well. You need not disclose any sensitive financial information, such as credit card, debit card or bank account details to the seller. This is again one of the primary reasons why most online shoppers in India prefer cash on delivery as their preferred mode of payment for their online shopping.

Disadvantages of Cash on Delivery (COD) mode of payment

1. Some customers change their minds about a product when you have already done the necessary shipping and delivery. The seller at this point will have already incurred transportation costs which accumulate to a loss for the e-commerce business.

2. The business representatives will be handling a lot of cash through the COD system unlike in the use of credit cards. This can easily lead to theft if the right security measures are not in place.

3. When partnered with a courier service, it usually takes a long time before the money collected through COD is transferred to a seller’s account, whereas credit and debit cards are instant.

4. Cash receipts make it rather difficult to determine the correct cash inflow and outflow figures and balance records.

Overall, the advantages of Cash on delivery overweigh the cons but its upto you to decide if you can accommodate the latter or not. We strongly recommend COD for new e-commerce businesses.

Cash on delivery and invoicing

It might seem like cash on delivery means skipping some parts of the sales process, however, this is not the case. Businesses should still issue invoices when an order has been placed, as part of a legal transaction but also to ensure thorough record-keeping.

An invoice can be created that specifies the payment terms ‘Cash on delivery’, giving the customer ample time to gather the necessary funds and make time to be present for the delivery. Expect your orders to jump 50 times with COD but be ready to tackle fraud as well (upto 10% orders will be fake).

Bonus Tip!

Here is a way to resist losses when providing COD option:
1. As soon as a COD order arrives, Call them back to confirm the order (most of the fake orders will fall apart on this step)
2. Recruit a delivery company that gives you best deal in COD (Transit does cost you time and money)
3. Open up COD only to only certain zip code areas.

We hope this guide helps you in deciding whether to opt for cash on delivery or not. Reach out to us for any queries or comment below!

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