Payments
Cash on Delivery: What is COD and how does it work?
June 10, 2023
While credit cards, mobile wallets, and Internet banking have transformed the way we pay for our purchases, Cash on Delivery is still the preferred payment method among buyers.
When it comes to online shopping, customers expect a fast, convenient, and secure checkout experience. However, limited payment options or complex checkout processes can quickly turn off potential buyers.
Studies show that 6% of shoppers abandon their baskets due to a lack of payment options.
Providing multiple payment options is key to winning and retaining customers in the competitive world of eCommerce.
Being one type of manual payment option, Cash on Delivery (COD) is crucial for any successful eCommerce business, and its importance cannot be overstated.
In this article, we’ll take a closer look at what Cash on Delivery means and how COD shopping can improve your customer experience.
Additionally, we will provide a comprehensive guide on understanding how merchants manage their COD orders from their admin panel.
Read how to enable Cash on Delivery on your Uvodo store.
But first, let’s talk about what Cash on Delivery is and how it works.
What is the Cash on Delivery payment method?
Cash on Delivery (COD), also known as “collect on delivery” or “payment on delivery” is a payment method that allows buyers to pay for their purchases at the time of delivery in cash, check, or electronic payment.
When customers select Cash on Delivery as a payment method at the checkout, they do not need to enter their payment details online; instead, they can pay with cash in person when they receive the product. This means that buyers can process their orders via COD if the order is virtual.
Cash on Delivery (COD) generally refers specifically to payment in cash at the time of delivery, as the name implies. However, some businesses may offer additional in-person payment options as part of their COD payment, such as pay by check or money order.
Defining Cash on Delivery terms
It's ultimately up to the seller to determine what types of in-person payments they are willing to accept as part of their COD service. They may choose to offer only cash payments for simplicity and security reasons, or they may accept other forms of payment as well, such as a payment terminal depending on their business model and customer preferences.
Also, it’s important to note that the specifics of Cash on Delivery terms can vary among retailers and regions. Some merchants may require a full deposit, while others may only ask for partial payment upfront.
In some cases, merchants that offer Cash on Delivery (COD) may implement some measures to handle the order returns. For this, they may require customers to place a deposit or provide their credit card information beforehand which we’ll discuss later in this article.
Cash on Delivery vs Cash in Advance
Cash on Delivery is a payment method in which customers pay for their orders at the time of delivery. On the other hand, Cash in Advance refers to the payment method in which customers pay for the order before they receive the order.
Cash in advance is a payment arrangement where customers pay for goods before receiving them. This gives merchants the assurance that customers will be compensated for their products before any shipment takes place.
Despite paying in advance, customers usually retain the option to return the items if they are dissatisfied with their purchase. In such cases, the usual return and refund policies of the retailer apply, allowing customers to get their money back if the products do not meet their expectations.
Types of payment methods for Cash on Delivery
Though it’s common for retailers to collect payments in cash with COD, there are various payment methods to offer flexibility to customers to pay with their preferred method:
Cash payment
Card payment
Mobile payment
Check payment
Online bank transfer
Digital wallet
Partial deposit
Cash payment
As the name implies, cash payment is the most traditional method for Cash on Delivery shopping. The customer pays the exact amount in cash to the delivery person when the order is delivered.
Card payment
In some cases, the delivery person may carry a card reader, allowing customers to pay using their debit or credit cards upon delivery. The card payment is processed on the spot, and the customer receives a receipt.
Mobile payment
With the rise of mobile payment services, retailers can offer mobile payments for COD orders. In this case, the customer can use their smartphone to process the payment with the mobile card reader for the delivered orders.
Check payment
Though less common, some retailers may accept checks as a form of COD payment orders. To proceed with the payment, the customer writes a check for the order amount and hands it to the delivery person.
Online bank transfer
Furthermore, retailers may also offer customers to transfer the payment online to the retailer's bank account before the delivery is made. In this instance, the customer provides proof of the transaction to the delivery person.
Digital wallet
Retailers can also offer digital wallet payments for customers to use for Cash on Delivery transactions. In this case, the customer authorizes the payment from their digital wallet at the time of delivery.
Partial deposit
Some retailers may request customers to pay a partial deposit in advance to confirm the order, and the remaining amount is paid in cash at the time of delivery.
How does Cash on Delivery (COD) work?
The process of Cash on Delivery payment is simple:
Buyer places an order on an online store, and chooses Cash on Delivery as their payment method on the checkout page.
The seller accepts the order on the admin panel, prepares, and ships an item to the customer's address.
In exchange for the goods at the time of delivery, the carrier receives cash, a check, or a money order from the buyer and then passes the payment back to the seller.
It's important for sellers to clearly provide COD payment terms in the checkout page.
It's also equally important for buyers to check the terms before placing an order to ensure they understand what payment options are available and what is expected at the time of delivery. This can help avoid confusion or delays in receiving the product.
How Uvodo's Cash on Delivery payment option can benefit eCommerce businesses?
As one of the manual payment options, Uvodo has a built-in Cash on Delivery payment method which you can enable it for the checkout page.
Uvodo's Cash on Delivery (COD) payment method can benefit eCommerce businesses in several ways:
Increase sales
Increase customer retention rate and loyalty
Enhance user experience
Provide flexibility and reduce friction
Reduce cart abandonment
Reduce payment disputes and product refunds
Reduce payment risks
Lower payment processing costs
Advantages of Cash on Delivery Shopping for Buyers
Convenience & flexibility
No dependency on card payments
Increased brand trust and security
Convenience & flexibility
COD offers a convenient payment method that allows customers to pay for their purchases only when they receive their order. It's one of the advantages of Cash on Delivery shopping that customers can inspect the product before making the payment, making sure that everything is perfect.
This is particularly important for buyers who are purchasing high-value items or items that are fragile or may easily be damaged during shipping. If there are any issues with the product, such as damage or defects, buyers can refuse to pay for it. By allowing buyers to inspect the product before making a payment is an ideal way to retain customers and increase satisfaction with your brand.
No dependency on card payments
Cash on Delivery shopping has the advantage of not requiring digital payments like credit or debit cards. This payment method is especially attractive to buyers who may not be comfortable with digital payment methods. People who do not use cards in suburban or rural areas can benefit from the Cash on Delivery payment option.
If buyers prefer the traditional payment method of cash, Cash on Delivery shopping allows them to purchase goods online without the need for credit cards or online transfers. Once the product is delivered, buyers check it, pay, and complete the transaction. The process of paying on delivery is convenient and straightforward for online buyers.
Increased brand trust and security
One of the primary concerns that customers have when shopping online is payment security. With the rise of online payment fraud and identity theft, many customers are hesitant to provide their credit card information online or use digital payment methods.
Cash on Delivery is a useful payment option that does not require customers to reveal their sensitive information.
With COD shopping, buyers have the option to receive products before making the payment, ensuring that they receive what they ordered and reducing the chances of fraudulent activity. This added security can provide customers with peace of mind.
Advantages of Cash on Delivery for online sellers
Being free from transaction fees
Building trust for brands
Attracting new customers
Reducing card abandonment
Enhancing user experience
Being ideal for businesses with limited digital payments
Reducing risks associated with third party payment providers
Being free from transaction fees
COD payment method is the ideal solution for small businesses as it liberates them from the burden of transaction fees imposed by payment gateways. By adopting COD, small businesses can avoid the additional costs that eat into their profits and redirect those resources towards marketing.
Embracing Cash on Delivery not only ensures that businesses receive the full payment amount for their products or services but also eliminates the complexities and deductions associated with third-party payment gateways.
Building trust for brands
Online payments may seem risky for many buyers, so they may want to prefer a different payment method. Your eCommerce store appears more trustworthy when you offer the Cash on Delivery payment method as you consider the customer's needs, preferences, and their security concerns.
Also, letting customers know that they can inspect the product and pay on delivery can build trust for your brand.
Attracting new customers
Cash on Delivery (COD) shopping attracts new customers who pay in specific ways, such as a smartphone, where card details are not required.
By offering COD as one of payment options, businesses can expand their customer base and increase their sales, as they can cater to buyers who may not have access to digital payment methods or who may prefer to pay in cash.
Providing clear instructions and communication about the COD process ensures that buyers are aware of how it works and what to expect. This can help build customer confidence and trust in the online store, leading to increased customer loyalty and repeat purchases.
Reducing cart abandonment
Ideally, the customer can purchase your product with just one click. In reality, this is not the case.
In the 2018 study, PayPal found that 30% of online shoppers abandon a purchase if their preferred payment method was not available.
Offering Cash on Delivery as an additional payment option can reduce the cart abandonment rates on your online store.
Enhancing user experience
Customers will enjoy a convenient and easy Cash on Delivery shopping offered in your eCommerce store. Offering customers COD payment option increases their confidence in purchasing.
For buyers, knowing that they can pay at the time of delivery, reduces friction at the checkout process and let customers skip the steps.
Ideal for businesses with limited digital payments
Cash on Delivery (COD) can also be beneficial for businesses that operate in areas where access to digital payment methods is limited. By offering COD as a payment option, businesses can expand their customer base and increase their sales.
Plus, businesses who enable the Cash on Delivery on the checkout page can reach more customers who may not have access to digital payment methods or who may prefer to pay in cash.
Reducing risks associated with third party payment providers
Cash on Delivery payment method reduces the payment risk for businesses as they receive payment directly from the customer at the time of delivery. This eliminates the need for credit checks, payment processing, and fraud protection measures that can be associated with the third party payment solutions.
The disadvantages of Cash on Delivery for online sellers
Possibility of stockout and waitlists
Risk for retailers
Increased return rates
Possibility of stockouts and waitlists
When customers place bulk orders to try different sizes or colors, it can lead to stockouts of popular items, causing frustration among other shoppers who may have to wait for restocking.
No guarantee of order success
Cash on Delivery may involve a risk for retailers as they ship orders without a guarantee that a customer will keep and pay for it. This may result in loss in shipping & carrier resources.
Increased return rates
COD may result in increased return rates, which can be costly for retailers to process, leading to potential losses in profits.
How to deal with Cash on Delivery product returns?
Product returns can lead to higher order return rates, potentially causing losses in profits and unnecessary additional delivery costs for online businesses.
Common reasons behind these returns can be weak product descriptions, impulsive orders,, and unclear COD terms.
To address these issues, you can practice the following things:
Improve product descriptions
Charge deposit for COD
Implement order confirmation
Have transparent COD policies
Pre-delivery contact
Educate customers
Improve product descriptions
Make sure that product description and images are accurate. By displaying every product detail with text and visuals, you leave no room for misinterpretation. This way, customers will have a clear idea of what to expect from the ordered item before the delivery.
Charge deposit for COD
You may also consider taking a small deposit at the time of COD order placements. This is a good indicator of customers willingness to pay for the order and accept delivery and can reduce the likelihood of rejections.
Implement order confirmation
You can get in contact with the customers via SMS, email, or call to ensure that they are committed to their purchases. This can help you reduce impulsive orders which lead to rejections afterwards.
Have transparent COD policies
When writing Cash on Delivery payment and delivery terms, clearly communicate the COD policy. Include any additional fees or charges associated with rejected orders if you have them.
Pre-delivery contact
Furthermore, you can make a call or message to reconfirm the Cash on Delivery order. By confirmation contact, you can also ensure the details of the delivery time and location, and available COD payment methods to the customers.
Educate customers
Finally, you educate customers about the consequences of rejecting Cash on Delivery orders. By knowing the additional delivery costs, the impact of rejection on your business, this can encourage customers to be responsible for purchasing behavior.
Cash-based accounting for COD
eCommerce businesses can consider using cash accounting when handling the Cash on Delivery (COD) payments.
In cash-based accounting, a business only records revenue when the payment is received. So, if a customer buys something, the business won't consider it as revenue until they receive the payment.
Cash on Delivery offers a practical and real-time approach to recognizing revenue, ensures accuracy in financial reporting, and simplifies the overall accounting process.
Enable Cash on Delivery payment on your store
Overall, the Cash on Delivery payment method is a win-win for both customers and merchants. Customers get the convenience and peace of mind that comes with paying only when they receive their order, while merchants can increase their sales, expand their customer base, and build trust with their customers.
Uvodo allows merchants to sell via Cash on Delivery without integrating any third-party tool. Cash on Delivery payment method is by default enabled for Uvodo stores.
Check our guide to how to add Cash on Delivery payment terms.
Sign up to Uvodo to create your free online store and enable various built-in payment methods, including Cash on Delivery to accept payments easily.
