Cash on delivery (payment)

Cash on delivery (COD): Meaning, Types & Advantages

As a payment option, cash on delivery is still used widely in different eCommerce markets. Learn how it works, its types, benefits and limitations.

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. It is a payment method that prevails in several eCommerce markets worldwide, even as the popularity of non-cash payments like cards and digital wallets rises.

We explain how cash on delivery works, its several types, as well as the advantages and disadvantages it comes with.

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.

What Are the Types of Cash on Delivery?

Cash on Delivery provides multiple payment options to cater to different preferences, such as:

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.
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.
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 of Cash on Delivery

Cash on Delivery has some advantages for businesses and consumers, including:

In-person COD transactions offer businesses immediate payment for goods and services, streamlining accounting by reducing the number of days accounts receivable are outstanding.
It typically ensures shorter delivery times, allowing customers to pay in full when they receive their goods.
It may help build customer confidence, which is especially beneficial for new businesses without strong brand recognition.
There is a likelihood that customers will not adequately plan for payment, resulting in returns, lost profits, and return shipping fees for merchants.
It provides 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.

Disadvantages of Cash on Delivery

Cash on delivery is generally considered a less sophisticated method of payment, since it has some visible limitations that electronic payments do not have. This includes:

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.
Established businesses often avoid COD risks by opting for credit payment plans with interest and late fees. This option is not available for COD payments.

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.

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