How does Cash on Delivery (COD) work?

How Cash on Delivery (COD) Works

What is COD (Cash on Delivery)?

Cash on delivery or COD is a popular form of payment for purchases made online. In this method, buyers make payments for their purchases in cash or card at the time of delivery of materials. In this process of payment, a buyer is most confident about purchases made and the sales are also higher for online sellers.

The COD Methodology

The methodology of COD system is simple. Delivery boys collect the invoice amount of a consignment from its consignee in form of cash at the time of delivery. The collected cash is then deposited at the local office of the e-Commerce company that made the sale. In this method of payment, both the
buyer and seller are satisfied. From seller’s point of view, cash handling is simple and does not involve technology. Proceeds from a sale are realized instantly and the possibilities of bad payment are entirely removed. COD could only pose a problem if the amount concerned is too high.

From buyer’s viewpoint, cash on the delivery system is preferable as payments are made only after physical verification of a consignment. Further, in cases of damaged or wrong deliveries, the good might be returned and payment made only after the ordered product is delivered. Payment could be deferred till delivery of the required item is effectuated.

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

Working of Cash on Delivery (CoD) and its Process Flow

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

  1. Normally, e-Commerce companies have their own logistics. If not, they hire a separate logistics company for delivering consignments and collecting payment.
  2. After an order is placed with an e-Commerce company the concerned material is sourced from a supplier of the concerning good. Once sourced, an invoice-cum-delivery challan is prepared by the e-Commerce company. This invoice-cum-challan is in most cases attached with the consignment for easy retrieval.
  3. The consignment together with the invoice is handed over to a logistics company for delivering the material and collect payment in cash.
  4. The delivery boy is authorized to collect cash immediately on delivery of the said consignment to the addressee. On product delivery, the payment is always collected in cash, from which ‘cash on delivery’ phrase originated. However, some companies accept card payments on delivering materials. For this purpose delivery boys also carry a card swiping machine.
  5. Delivery boy after collecting the invoice amount deposits it in his office. The logistics company, in turn, hands over the cash to the supplier or e-Commerce company after deducting handling charges.
  6. The money ultimately reaches the seller or e-Commerce company.

 

Cash on Delivery is a fairly risk-free process of buying products and services online. This 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.

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Praveen Sharma

Writing for someone to read, reading what someone has written. Connect with me over Twitter.