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Cash on Delivery (COD): What Is It and How It Works

Puneet Bhalla

Associate Director - Marketing @ Shiprocket

August 22, 2017

4 min read

What Is COD (Cash On Delivery)?

Cash on delivery or COD is a popular form of payment for purchases made online. COD allows buyers to make payments for their purchases via cash or card at the time of delivery of their orders. Research suggests that the customers are confident about their purchases made via the COD model. It also increases the probability of sales for eCommerce sellers.

The COD Methodology

The process of the COD mode of payment for an order is simple. Delivery agents collect the invoice amount of a consignment from its consignee in the form of cash at the time of delivery. The collected cash is then deposited at the local office of the eCommerce company that made the sale. In this method of payment, both the buyer and seller are satisfied.

From the seller’s point of view, cash handling is simple and does not involve any complex processes. The proceeds from a sale are realized instantly, and the possibilities of payment failures are ruled out. COD could only pose a problem if the order amount is too high.

Shiprocket offers an Early COD feature using which you can take control of your cash flow and receive payments with no hold. With the Early COD option, we guarantee COD remittance in 2 days. Read more about Early COD here. 

From the buyer’s viewpoint, the cash on the delivery mode is preferable as payments are made only after a consignment actually arrives. Furthermore, in cases of
damaged or wrong deliveries, the buyer may refuse to accept the package. There are fewer risks since the payment is made only after the ordered product is delivered. Payments can be deferred until the delivery of the required item is effectuated.

The COD model of payment is popular in India, and there are several reasons for this. One is that Indians are comfortable dealing in cash rather than in debit or credit cards for making payments.

Working Of Cash On Delivery (COD) & Its Process

The entire process of COD involves the placement and execution of order except for the collection of the payment. The cash payment is made to the supplier by the buyer after the consignment is delivered. However, the process of COD begins from the moment your order is placed.

Usually, eCommerce companies ship via their courier partner. If not, they hire a separate logistics partner for delivering consignments and collecting payment.

  • After an order is placed with an eCommerce company, the concerned item is sourced from a supplier. Once sourced, an invoice-cum-delivery challan is prepared by the eCommerce company. This invoice-cum-challan is in most cases attached to the consignment for easy retrieval.
  • The consignment together with the invoice is handed over to a logistics company for delivering the order and collecting payment in cash.
  • The delivery boy is authorized to collect cash immediately on the delivery of the order to the customer’s doorstep. However, some companies accept card payments as well at the time of delivery. That being said, delivery executives also carry a card swiping machine.
  • After the collection of the invoice amount, delivery agents deposit it in the office. The logistics company, in turn, hands over the cash to the supplier or the eCommerce company after deducting handling charges.
    The money ultimately reaches the merchant of the ordered product.

Conclusion

Cash on Delivery is a relatively risk-free process of buying products and services online. It is especially true for the first time online buyers, and for products that are expensive. COD has been instrumental in the unprecedented growth of online commerce in India. It is an easy concept for the masses to understand and accept. In India, it is a payment process that is expected to stay for several years.

FAQs (Frequently Asked Questions) 

What happens if a customer refuses to pay a cash-on-delivery order?

Unfortunately, under this circumstance, the order is returned to the seller

Do I need to pay an additional fee for cash on delivery orders?

Yes. All courier partners charge a cash-on-delivery fee when you choose this payment option. 

When do I get the COD payments from the courier partner?

Courier companies usually have a 7-10 days remittance time for your COD payments. Shiprocket offers you early COD remittance i.e. as soon as 2 days after delivery. 

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8 thoughts on “Cash on Delivery (COD): What Is It and How It Works

  1. Hi,
    I’m. CEO at daraz and this venture is started for such buyers who prefer to pay in COD form…

    This article was detailed and i have read it… Now let me know about shipping and handelling charges by product’s categories… Also

    Let me know how can i hire your company as my logistic partner

    Thanks

  2. Want to start e commerce website.please help me with the process & formalities required to be performed.also the estimate charges for shipping &other charges incurred to deliver a product.

  3. Hi,
    As I am planning to start an eCommerce business, I need more information about the COD method and looking to tie up with the company for the delivery part of my products.
    Thanks

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