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What is Cash on Delivery? Its Importance in India

Business Process Automation

Online shopping is increasing rapidly. Every one of us is opting to shop online rather than going to brick-and-mortar stores for anything from daily groceries to basic necessities, gadgets, pet supplies, and more. But consumers started to feel uneasy about shopping online. Order anxiety increased because they couldn’t immediately take possession of their purchases. They would make countless calls if you added online frivolous frauds to the mix. That’s where the Indian eCommerce ecosystem is once again exhibiting a preference for cash on delivery over online payment options. For customers placing orders online and delaying payment until after delivery has made us feel less anxious about making purchases.

Continue reading this blog for an in-depth understanding of Cash On Delivery (COD)!

What is Cash on Delivery/Pay on Delivery?

Many businesses provide a service called “cash on delivery,” which allows the consumer to defer payment until the product is delivered. This implies that you must first make a payment for the package before you can accept it. Before you receive your item, the vendor emails you an invoice with a price that you have to pay. The merchant will then acknowledge receipt of your payment and send you an email to let you know.

Online orders incorporating cash on delivery enable clients to make purchases without holding up cheques or electronic transfers. Customers can place online orders using the cash-on-delivery method without worrying about additional fees or other surprises. Additionally, using this technique enables customers to acquire products without having to pay in instalments or a down payment, allowing them to pick up their purchases whenever it is most convenient for them.

On the other hand, online shopping sites provide the Pay on Delivery option, which is a little different than Cash on Delivery because POD allows you to pay in cash and online when the delivery boy is present.

COD Operations and Process Flow

Cash On Delivery

Except for the collection of the payment, the entire COD process is placing and executing an order. After the package is delivered, the buyer pays the supplier in cash. However, the COD procedure starts as soon as you place the order.
Typically, businesses use their courier partner to ship. If not, they contract a different logistics partner to handle shipment delivery and payment collection.

  • An eCommerce business sources the requested item from a supplier after receiving an order. The eCommerce company then creates an invoice-cum-delivery challan after sourcing. In most circumstances, this invoice is affixed to the consignment for simple retrieval.
  • A logistics company receives the shipment and the invoice to deliver the order and collect the cash payment.
  • Upon delivery of the order to the customer’s doorstep, the delivery boy has the authority to collect cash immediately.
  • Delivery agents deposit the invoice amount in the office after collecting it. After subtracting handling fees, the logistics provider delivers the money to the vendor or eCommerce provider.
  • The seller of the ordered item receives the money in the end.

Importance of Cash on Delivery

Nearly 83% of Indian consumers choose cash on delivery as a method of payment for online goods, according to Nielsen’s Global Connected Commerce Survey, which was featured on Business Insider. Consumers prefer cash on delivery over any other type of advance payment in proportions of 72% for those from major cities and 90% for those from smaller towns.

Also, only 30% of all online purchases are performed via payment methods like net banking, debit and credit cards, and online wallets.

  • The causes?
  • Fear of online scams
  • Insufficient network for online transactions
  • No dependency on payment cards
  • Lack of secure payment gateways
  • Familiarity with cash payments
  • Ease of transaction
  • Post-purchase order anxiety

Simply put, cash on delivery (COD) provides online customers with the security and comfort they want.

Before making a purchase, a consumer can hold the item.

Advantages of offering Cash on Delivery

Offering cash on delivery as a payment option has many advantages, both for the business and for the customer let’s understand them.

For Business

1. Attracts a Broader Customer Base

One of the main benefits of COD is that buyers may only make a purchase once an online courier service has delivered the item to them. Due to this, Indian online customers now choose COD over other payment methods. Offering a COD payment option for all of your orders is crucial if you want to take advantage of this larger consumer base.

2. Builds Client Trust

There is no chance of the clients losing their money because they do not have to pay for their things in advance when using the COD payment method. As a result, the customer is more likely to trust your company. Additionally, before making a purchase, the consumer can see the product in person to make sure everything is as intended. The buyer can easily return the item if the e-commerce delivery service sends a different or damaged product.

3. Great Marketing Approach

For eCommerce retailers, offering the option of cash on delivery gives them a significant competitive edge. This is a fantastic marketing tactic that raises the likelihood of sales.

Cash On Delivery

For Customers

1. No dependency on Electronic Payment

Customers that choose the Cash On Delivery payment options benefit greatly from not being reliant on debit and credit cards. Customers from suburban and rural areas, where few people use these cards, will benefit from this. The majority of clients in these locations favor straightforward transaction procedures, such as receiving the product, inspecting it, and then paying for it.

2. Security of Sensitive Data

Security may be kept up adequately using the Cash On Delivery payment method. There is no need to give the vendor any private financial data, such as credit card, debit card, or bank account information. This is yet another important factor in why most Indian internet customers choose cash on delivery as their preferred payment method.

3. Pay only After Receiving

Customers’ trust increases by accepting cash on delivery. This is relevant in particular for the new e-commerce company, which lacks a brand yet. In these circumstances, the COD option aids in boosting client credibility.

Disadvantages of Cash on Delivery

1. Loss of Revenue to the Sellers

After you have already completed the necessary shipment and delivery, some buyers decide they no longer want a product. At this stage, the seller will already have paid transportation charges, which result in a loss for the online store.

2. Fear of Theft

Contrary to the use of credit cards, the business representatives will handle a lot of cash using the COD system. If the proper security measures are not put in place, theft can easily result from this.

3. Time-Consuming Payments

While credit and debit cards are instant when used in conjunction with a courier service, it typically takes a while for the money obtained through COD to be deposited into a seller’s account.

4. Complicated to examine

Finding the relevant cash inflow and outflow data and balance records can be challenging when dealing with cash receipts.

5. Minimum Transaction Value

Some online shopping sites require a minimum purchase amount before a customer can select the “Cash on Delivery” option. This requires the buyer to spend more money, which occasionally results in client loss.

Bonus Tips!

Here is how to avoid losing money while offering the COD option:

1. Call them back to confirm the order as soon as a COD order arrives (most of the fake orders will fall apart on this step)
2. Find a delivery service that offers you the greatest COD rate (Transit does cost you time and money)
3. Limit the availability of COD to specific zip codes.

Overall, Cash on delivery has more benefits than drawbacks, but it’s up to you to decide whether you can live with the latter. For brand-new e-commerce firms, we highly advise COD payments.

Conclusion

The COD/POD method must be added if you are creating a fresh online shopping platform without a lot of reviews or branding. Your customers will feel more credible as a result. Cash/pay on delivery, as previously said, gives purchasers a feeling of security and flexibility. You can use this technique to give your clients a smooth buying experience.

Cash on delivery is a flexible system, though it does have its share of advantages and disadvantages, and it can draw in more customers than you might imagine. For internet shoppers, it is a convenient payment option. It ensures greater profits for the sellers and complete payment privacy for the buyers.

We hope this guide helps you decide whether to choose cash on delivery or not.

FAQs

1. What is the meaning of “cash on delivery” (COD)?

Ans: Cash On Delivery is a payment method that allows the consumer to defer payment until the product is delivered.

2. What distinguishes pay on delivery from cash on delivery?

Ans: Pay on delivery is a bit different from COD because in POD you can make cash as well as online payment in the presence of the delivery boy.

3. When to make a COD payment?

Ans: Before accepting the package and signing the delivery sheet, the COD payment must be made in full (cash). Opening the package is only possible after payment has been made.

4. What are the benefits of Cash on Delivery for customers?

Ans: The advantages of Cash on Delivery for customers and businesses have been covered in this blog.

5. Which one do the Customers prefer more COD payment method or the Online payment method?

Ans: Consumers prefer cash on delivery over any other type of advance payment in proportions of 72% for those from major cities and 90% for those from smaller towns.

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