Understanding Cash on Delivery: How It Works and Its Benefits

Cash on Delivery (COD) has become a popular payment method as it provides a sense of security to customers while shopping online. By allowing customers to receive the product before making the payment, COD eliminates concerns about online fraud, faulty products, or discrepancies between what was bought and what was delivered.

Even e-commerce giants like Amazon recognised the unique requirements of the Indian market when they first launched in the country and introduced COD as a payment method. This strategic approach helped them gain customer trust and establish a solid foothold in India’s rapidly growing e-commerce market.

What is Cash on Delivery?

Cash on Delivery (COD) is a mode of payment where customers pay only when the product arrives at their doorstep. Instead of paying in advance, customers pay after receiving and inspecting the product. COD payments can be made using cash, UPI,  card, or other digital methods. 

For example, suppose a customer orders a smartphone online and chooses COD payment. In this situation, the vendor will be paid only after the customer receives the product and pays the delivery executive. 

How Does COD Work?

Here is a step-by-step process of how COD works:

Step 1: Make a Purchase

The customer places an online order but doesn’t make the payment at this stage. 

Step 2: Accept or Reject the Delivery

At the time of delivery, the customer can choose whether to accept or reject the product.

Step 3: Payment

If they accept the delivery, they need to pay the delivery executive through the payment gateway using UPI, debit, or credit cards, or they can choose to pay with cash.

Step 4: Order Completion

Upon successful payment, the order will be completed. 

Read more: Best Payment Gateway for Your E-commerce Business

Benefits of Offering COD to Your Customers

• Wider customer base: COD allows you to reach a wider audience that may not be comfortable with online payments or doesn’t have access to digital banking. It helps you appeal to them and gain their trust.

• Flexible payment options: With COD, customers can pay using cash, cards, or even mobile wallets and complete their purchases conveniently.

• Reduces the risk of non-payment: The delivery executive collects the payment at the time of delivery, so businesses don’t have to worry about delayed or missed payments.

• Enhanced customer confidence: COD increases customer confidence, as they pay only after receiving and examining the product. This boosts customer satisfaction and loyalty, improving their overall shopping experience.

Pros and Cons of COD

While COD offers several benefits for businesses, it also has some limitations. Here are the pros and cons of providing this payment option to your customers:

Pros	Cons
Builds trust by allowing payment on delivery.	Higher operational costs for returns and handling.
It helps reach a wider customer base.	Risk of customers refusing delivery, leading to losses.
Reduces instances of cart abandonment as no upfront payment is needed.	Increased risk of fraud, as no payment is required upfront.
Offers flexible payment methods like cash, card, or mobile.	The delivery executive may have to handle large amounts of cash, risking misplacement.
Enables customers to inspect products before paying.	A longer sales cycle with delayed cash flow.

Read more: 6 Ways to Reduce Cart Abandonment with PhonePe Payment Gateway

Things to Consider When Offering COD

• Limit the purchase amount: Limit COD orders to products below a specific value to prevent rejections and returns.

• Verify the buyer’s purchase intent: Confirm orders through emails or phone calls to ensure the buyer is serious about buying the product. This will lower the possibility of delivery being rejected.

• Add a COD surcharge: Introduce a small surcharge for COD orders to cover the extra handling costs. Be transparent with customers about this fee to maintain trust.

• Communicate refund policies clearly: Inform customers about the refund process before the sale. Cash refunds can be complicated, so offering alternatives like credit notes can help avoid confusion or dissatisfaction.

To Sum Up

Despite the growing popularity of digital payments in India, many customers still prefer COD, making it an effective option to reach a wider audience. However, to make the most of COD, businesses must follow best practices such as establishing purchase limits, confirming the buyer’s intent, charging a reasonable surcharge, and clearly outlining return policies. These strategies can help avoid misunderstandings and ensure a smooth payment experience for both sellers and customers.