What is cash on delivery? When to use COD in e-commerce?

Cash on delivery is abbreviated as COD, this is not a new concept, especially when the e-commerce industry is growing. So what is cash on delivery? What are the benefits that COD form brings in today’s e-commerce business?

What is cash on delivery ?

What is Cash on Delivery? Perhaps a question that many people are interested in, especially those who are intending to work in the shipping industry or selling online, … So what is cash on delivery?

Definition of cash on delivery

Cash on delivery, abbreviated as COD, is understood as receiving goods and then paying in cash. This could mean that payment is made at the point of delivery – and if the buyer doesn’t pay, they won’t be able to keep the goods – or that they have time to inspect the goods before deciding to pay, receive. This gives them time to return the item if they find that the product doesn’t meet their expectations, or simply doesn’t match the original model.

Cash on Delivery or COD is a popular form of payment for purchases made online. In this method, the buyer makes payment for the purchase by cash or card at the time of delivery.


 What is COD’s operating model?

The operating model of the COD system is very simple. The freight forwarders will be responsible for collecting the invoiced amount of a shipment from the consignee in cash at the time of delivery. The proceeds are then deposited at the local office of the e-commerce company that made the sale.

With this payment method, both buyer and seller are satisfied. From the seller’s point of view, receiving cash is very simple and does not involve much technology as well as does not complicate the delivery and purchase process while still ensuring revenue when selling products. Proceeds from sales are recognized immediately and the possibility of non-payment and debt is completely eliminated. COD only has a problem if the amount is too high and the seller cannot guarantee the reputation of the freight forwarder and is not sure that his customer will “blow out”.

From the buyer’s point of view, cash on delivery system is preferred as payment is made only after actual verification of the shipment. Furthermore, in the event of a damaged or incorrect delivery, the goods can be returned and payment is made only after the ordered product is delivered. Payment may be deferred until the requested delivery becomes effective. This helps the buyer to ensure that he is not “cheated into losing money” when buying compared to the transfer method.

See also: What is cash flow? How to calculate cash flow correctly

Cash on delivery (COD) operation and money transfer process in e-commerce

In the COD process, the entire buying and selling process is done online except for the collection of payment. Buyers only pay cash upon receipt. However, this COD process has started since the seller delivered the order to the business responsible for shipping and forwarding.

Typically, e-commerce companies have their own delivery and COD staff. Otherwise, they hire a separate logistics company to deliver and collect payment.

After each order is placed from a seller or an e-commerce company, the orders and items are obtained from a supplier of the goods. The shipment is then handed over with the invoice to a logistics company for delivery and collection of payment. The forwarders will be authorized to collect cash immediately upon delivery of said shipment to the recipient. When delivering products, payment is always collected in cash, from which the phrase “cash on delivery” originates. However, some companies accept card payment on delivery, at which point the delivery staff will be required to bring a card machine to do the job.

The freight forwarders after collecting the invoice amount will transfer the money to the office of their business. Finally, the logistics company will hand over the cash to the supplier or the e-commerce company after deducting the forwarding costs according to the previously agreed contract. The money eventually goes to the seller or the e-commerce company.

So should you use this COD service for business?

Cash on delivery is a type of payment made on successful delivery, rather than upfront through online payments or banking. Sometimes it is also flexible that instead of paying cash, some businesses agree to let buyers pay through their credit cards. COD helps ensure that the exchange process goes smoothly and ensures that the money and products are received – paid in the right hands of the buyer – seller.

This form is widely used in online product sales. However, it also exists some risks such as product loss, stock outage, etc. So should you use this form of business for yourself?

Should a seller look for a service that offers this option?

As a small e-commerce owner, working with courier companies that offer this payment option can be a smart decision. This is especially significant in two cases:

  • If you are a start-up company that does not have many online reviews or has not yet built trust with your customers, using a cash-on-delivery service can make buyers trust. more on the credibility of the company.
  • The second case is if your customers are not knowledgeable about online payment technology, or do not trust online transactions, choosing to collect cash on delivery can attract customers. thereby increasing sales.

In addition, providing this payment option also offers the ability to make purchases for customers who do not have enough money on their credit cards or for young customers who do not yet have one from which the business will attract potential customers. this for yourself.

However, merchants offering this type of payment should also consider possible issues. Since the buyer is not obligated to accept delivery, he or she can refuse to accept it and the seller still has to pay the delivery costs sometimes paying the return shipping fee. Customers who choose this type of payment are typically less likely to commit to a purchase than those who have paid upfront, so delivery refusals are actually not an uncommon occurrence.


Some reasons to choose cash on delivery

  • Many businesses choose COD delivery or shoppers request it for the following reasons:
    The delivery person is present at the time of delivery: therefore often chosen by those who are retired or have flexible working hours.
  •  Greater protection for buyers: purchases will not be shown on bank statements, so can be selected for purchases that buyers may want to keep private.
  • COD is especially suitable when the delivered products are of low value: in simple terms, you will find it difficult to see valuable products such as mobile phones, technology toys, computers, etc. COD form because this form does not guarantee cash safety as well as maintain product quality when transporting and receiving. Therefore, before deciding whether to use the COD method or not, you should carefully consider what products you trade to make the most suitable choice.

In addition, shoppers also love to receive goods and then pay in cash for the following reasons:

COD allows them to have greater control over their own costs: cash on delivery options can let customers rethink the product they’ve purchased and decide whether to receive it or not.

  • The buyer actually needs to be physically present to provide the payment, which means that the parcel cannot be mistakenly passed on to someone else without having been entrusted to receive it from the person ordering it.
  • Easy, fast and reliable: online payments are sometimes still a scary thing for some people, however, in reality they are much easier to do and so much simpler and faster.


Cash on Delivery or COD is a popular form of payment for purchases made online. In this method, the buyer makes payment for the purchase by cash or card at the time of delivery. Hopefully through this article you have a clear understanding of what is cash on delivery? The advantages and disadvantages of COD in the end, from which to choose the right shipping method for the product you trade.

See also: What is monetary policy? The role of monetary policy in the economy

Leave a Reply

Your email address will not be published. Required fields are marked *