What is Cash on Delivery and Why Is It Important for Online Businesses

In Indian tier-2 and tier-3 cities, cash on delivery, or CoD, continues to be the primary method of payment for 80% of online customers.

The e-commerce industry’s expansion over the past ten years has completely changed how the nation does business. In the country, there will be 150 million online shoppers by 2020, up from 110 million in 2018. And in 2021, this number is projected to increase to 190 million individuals.

Even with the exponential growth of online purchasing, it has been observed that consumers take some time to come to trust a certain business and are hesitant to pay in full before using their product or service. Due to this, people are more likely to choose cash on delivery than electronic payment.

In this blog, we outline the justifications for why cash on delivery is still useful for your online business in the age of electronic payments. Read on.

What is Cash on Delivery (CoD)?

As opposed to paying for a good or service in advance, Cash on Delivery (or CoD) allows customers to pay in cash after their order is fulfilled.

As opposed to paying for a good or service in advance, Cash on Delivery (or CoD) allows customers to pay in cash after their order is fulfilled. Cash on delivery has continued to be one of the most popular methods of payment between businesses and customers even as internet shopping has gained popularity among consumers over the past several years.

Cash on delivery has continued to be one of the most popular methods of payment between businesses and customers even as internet shopping has gained popularity among consumers over the past several years.

Read Also: Internet Statistic Every Ecommerce Marketer Should Know In 2023

Customers prefer Cash on Delivery for what reasons?

The country has been swept up in the digital payments revolution over the past ten years, with numerous consumers doing cashless transactions. However, a large portion of the Indian populace still has reservations about internet shopping and payment.

Here’s why CoD is here to stay as a popular mode of payment for customers :

• Limited access to the internet

Let’s face it: Our country still has a low internet penetration rate, and connectivity continues to be a serious issue for people living in tier-2 and tier-3 cities. Customers are being pushed toward COD payments by an increase in occurrences of unsuccessful payments as a result of limited internet connectivity.

• Relieves stress 

Through COD, customers can examine an item in person before deciding whether or not to pay for it. Customers interested in making physical purchases utilizing Cash on Delivery still care about pricing and quality. 

• Familiarity with cash payments

Cash on delivery is still a common payment method, particularly for less tech-savvy customers. Customers that feel at ease purchasing with cash prefer to stick with what they know. 

• Increased cases of fraud 

Many clients now have a small trust deficit as a result of online payment scams. Despite the fact that individuals trust specific payment gateways and websites, many are hesitant to share their account information or transaction details online out of concern for cyber theft and the lack of a sale guarantee.

By providing information about the delivery location, the consumer puts an order for a good or service on the company’s app or website. In this case, the customer places the order and chooses cash on delivery as the method of payment.

Now, the business delivers its goods or services to the customer using either its own delivery personnel or a delivery partner.

When the item is prepared for shipping, the delivery person picks it up, delivers it to the client, and takes cash payment. After deducting the delivery and shipping fees, the delivery partner deposits this sum into the business’s account.

Cash in Advance vs. Cash on Delivery

Cash in advance is different from cash on delivery in that the buyer makes the payment before the good or service is shipped or delivered. Credit and other cash-in-advance payment mechanisms are used to remove the seller’s credit risk, or risk of non-payment. Cash up front benefits the seller, while the customer runs the risk of obtaining items that are late, damaged, or not what they were expecting. Contrarily, cash on delivery is advantageous for both the customer and the vendor.

Goods are shipped prior to payment in cash-on-delivery agreements. When using cash-in-advance arrangements, the seller expects the buyer to pay the whole amount up front before the shipping procedure can begin. This guards against lost revenue from goods shipped without payment.

The most typical method of payment for e-commerce, online marketplaces, and cross-border business transactions is cash in advance. The ability of a business to accept risk determines whether it decides to use cash on delivery or cash in advance. Due of their more sophisticated accounts receivable and collections processes, larger enterprises may provide buyers with cash in advance.

Pros of Cash on Delivery

It’s essential for businesses to provide COD as a payment option in addition to a variety of digital payment alternatives in order to run a successful online business.

• Wider outreach

CoD enables businesses to connect with a larger clientele that might be wary of using online payment methods. Cash on delivery eases customers’ concerns and aids firms in turning potential tier-2 and tier-3 clients into devoted repeat customers.

• Multiple payment options for customers

While it aids companies in expanding their market for their products and services, COD also demonstrates the adaptability of the organization to accept a variety of payment choices.

• Bridges the technological gap 

Millions of individuals in India still lack access to a smartphone or internet services to enable online payments, despite digitization and the smartphone revolution. For many people in the nation, COD is their sole payment option as a result. Therefore, CoD aids businesses in reaching out to demographics in distant areas where smartphones and internet access are less common.

• Builds customers’ trust

Due to the increase in online fraud and scams, many clients actively choose for COD and avoid making financial transactions online. For these customers, COD is still the only accepted form of payment. And losing such a sizable market sector might significantly affect a company’s bottom line.

Drawbacks of Cash on Delivery

Despite the fact that most Indian customers prefer COD to an online transaction and that it is a must for e-commerce and online enterprises, handling COD refunds can be expensive and time-consuming for sellers without a reliable refund procedure.

What occurs when a client returns an order and chooses to receive a refund is as follows.

The company sends the customer a form or email that they must fill up with their bank account information.

The team in charge of making payouts for the refunds receives these details next. If there are multiple refunds, the team can make a bulk payout or manually make a one-off payout by manually uploading the account information on the bank’s site.

Cash-on-delivery refunds need a laborious, labor-intensive, and error-prone process that takes 5 to 7 business days, which is challenging for both the company and the client.

RazorpayX Payout Links simplify CoD reimbursement.

Cash-on-delivery refunds are a serious issue because a large percentage of online transactions are made through CoD and roughly 30% of online firms experience returns. CoD refunds are streamlined and expedited in a matter of minutes with RazorpayX Payout Links.

Instead of manually crediting the money, businesses can automate the entire refund process by using Razorpay X Payout Links to credit the refund amount to the customer’s bank account.

All you need to do is establish a Payout Link and include the customer’s name, contact information, email address, and the amount to be reimbursed.

Next, this payout link is emailed to your customer, who may use it to enter their bank account information, confirm their information with an OTP, and immediately receive the refund.

Over to you

Let’s all agree that cash on delivery is widely accepted and popular across all demographics. Start processing 24 hours a day, seven days a week, quick, secure COD refunds without requesting your customers’ bank account information right away, rather than suffering and losing money with manual COD refunds!

• comprehensive banking services Businesses can open current accounts, pay taxes, schedule payments, pay vendors without a hitch, and verify invoices from a single dashboard thanks to solutions like RazorpayX. This helps to save both time and effort.
• It is a banking and accounting platform that bridges the knowledge gap between finance experts and cutting-edge banking solutions. It makes the integration of accounting software simple.
• Businesses may automate salary payments and offer insurance to their employees using RazorpayX Payroll.

Frequently Asked Questions :