Cash On Delivery: A Comprehensive Guide to Its Benefits & Drawbacks
In the world of eCommerce, flexible payment options play an important role in building customer experience and trust. Cash on delivery (COD) has become a popular choice among other payment methods, especially in Indian markets, where customers value convenience and security in transactions. A June 2022 survey by Rakuten Insight found that 62% of Indian consumers preferred cash on delivery for online purchases. COD allows customers to pay for their orders only when the service or product is delivered, bridging the gap between online retailers and hesitant customers.
In this blog, we will explore the concept of cash on delivery, its benefits and challenges, and why it is a favourite for Indian shoppers or customers.
Defining Cash on Delivery (COD)
Cash on Delivery is a payment option in which customers pay for their order only when it is delivered. This method allows customers to inspect the product before making a payment and offers them a sense of security and trust. It is popular in regions where people want to avoid online payments, or customers cannot access digital payment methods.
This approach helps your eCommerce business connect with a broader audience, especially customers who are hesitant to pay in advance.
Cash on Delivery vs. Cash in Advance
Cash on delivery and cash in advance are two different types of payment methods with their own features. Here is a brief comparison of them:
Aspect | Cash on Delivery | Cash in Advance |
Payment timing | The customer completes payment after receiving the goods or services. | Payment is completed by the customer before the goods or services are provided. |
Risk for sellers | There is a high risk, as sellers may not receive payment if the customer refuses the delivery. | Lower risk, as the seller has received the payment before sending or providing goods. |
Risk for buyers | Lower risk, as the buyer pays after receiving the product. | Higher risk as the buyer has paid before getting the product. |
Cash flow | The seller’s cash flow can get delayed. | The seller’s cash flow is improved because the payment is received before. |
Cancelling orders | High chance of cancelling orders, as customers can refuse to pay on delivery. | Low chance of cancellation as customers have already paid for the product. |
Customer trust | Ideal for customers who take precautions while shopping online. | Ideal for customers who are confident in the brand or seller. |
Popularity in India | Highly popular in tier 2 and tier 3 cities. | Opted by digitally active customers and local buyers. |
The Process Behind Cash on Delivery Orders
The cash-on-delivery (COD) process includes multiple steps, ensuring you and your customers have a seamless experience. Here are some simple steps explaining the process of cash on delivery orders:
- Placing Order: The customer places the order and chooses the COD as their preferred payment option.
- Order Confirmation: You can call or message the customer to confirm their order and preferred payment method, which can reduce the chances of cancellation.
- Delivery and Payment: You pack and ship the order through your trusted delivery partner, using a COD tag to ensure the rider collects the payment at delivery time.
- Order Completion: The payment and delivery of products is successfully completed, and the order is considered to be complete.
The Benefits and Drawbacks of Offering COD
Here are some of the benefits and drawbacks of the COD payment method for you and your customers.
Benefits:
- Customers feel more secure and trusted with the COD payment option.
- The COD payment option attracts customers who don’t have the option to pay online or through cards.
- Cash on delivery increases conversions from first-time buyers to regular and loyal customers.
- This method is convenient for customers, as they can pay in cash or through digital wallets (if applicable) after delivery.
- Unsatisfied customers can return items without any financial commitments, making shopping worry-free for them.
- COD encourages customers to make impulsive and spontaneous buys, which leads to higher sales and revenue.
Drawbacks:
- Customers can refuse to accept orders at the time of delivery, which can increase return and handling costs.
- COD needs extra resources to handle logistical operations like cash and returns.
- Businesses receive payments days after making the deliveries because of the processing times.
- The COD payment option has a higher risk of fraud or untraceable buyers.
- COD poses security and logistical issues for delivery agents as they get large amounts of cash.
- When a customer rejects or returns an order on delivery, it can lead to financial losses, higher operational costs, and disruptions in inventory management.

How eCommerce Brands Handle COD Payments?
Here is how eCommerce businesses like yours handle COD payments efficiently to ensure customer satisfaction and smooth operations.
- Having Reliable Logistical Providers: Collaborating with delivery partners who are experienced and reliable to handle COD orders can help you manage orders and payment collection effectively.
- Using Verification Systems: Before sending orders, you can verify customer details like address and number to reduce returns and fraud. One-time passwords (OTPs) are also commonly used now for verification.
- Setting Cash Management Protocols: Training delivery agents to handle cash during transportation. This ensures that the cash collected is deposited in your designated account.
- Tracking Payments: With advanced software, you and customers now track COD payments and confirm them with orders to make sure the payments are faster and have no human errors.
- Managing Return and Refund Processes: If the customer refuses delivery or decides to return the order, the businesses have policies for handling returned products.
- Limiting COD orders: You can cap the maximum order amount eligible for COD to minimise risks.
Starting Cash on Delivery for Your eCommerce Business
Starting cash on delivery as a payment option can help you attract more customers and increase sales. Here is a guide for you to get started:
- Understand Your Audience: Research your customer base and identify if COD is their preferred payment method.
- Collaborate with Reliable Delivery Service Providers: Choose reliable and trusted partners who are experienced in handling COD orders and make sure that their cash collection process is efficient.
- Set Clear Policies for COD: Clearly communicate your eligibility criteria, maximum order value, restricted areas, and policies about order cancellations, refunds, and returns.
- Train your Staff: Make sure that the delivery agents are trained to handle cash securely.
- Plan Cash Management: Establish a system for tracking cash collected by delivery agents and maintain records to avoid confusion.
Important Precautions When Offering Cash On Delivery
While cash on delivery attracts more customers, it also has multiple risks involved in it. Some of the key precautions that you can take while offering COD include:
- Verify Orders Before Shipping: Use order confirmation methods like OTP, phone calls, or message verification to reduce fake orders and automate order validation.
- Limit COD Eligibility: Set a minimum order value for COD payment and restrict COD availability to regions to minimise financial risks.
- Implement Return Policies: Set clear guidelines for product returns and refunds for COD orders.
- Reduce Delivery Costs: Prioritise efficient delivery routes and group orders in the same region to reduce operational expenses.
- Monitor Customer Behaviour: Identify frequent returns and cancellations by specific customers and try blacklisting their accounts with a history of fraud behaviour.
- Communicate COD terms clearly: To maintain customers’ trust, clearly state the COD-related terms, such as non-availability, additional fees, etc.
- Train delivery agents: Train your delivery team, equip them with mobile receipts or digital collection options, etc., to handle COD transactions and to make sure that the cash collection is done accurately.
Taking help from platforms such as Shiprocket Checkout can make the shopping experience smooth, so that customers can easily make online payments, reducing delivery costs and other hassles.
Why Indian Shoppers Love Cash On Delivery?
Cash on delivery has become a favourite payment option for Indian shoppers for different reasons, such as:
- Many Indian customers feel more comfortable and secure in paying for goods only after receiving them.
- It eliminates the fear of fraud, undelivered, or defective products.
- COD caters to customers who rely on cash for daily transactions.
- It offers a simple and hassle-free alternative without needing online transactions.
- COD helps to bridge the gap between modern eCommerce and traditional payment preferences.
- COD is a convenient choice for customers, as it is flexible and great for last-minute purchases.
- New online shoppers generally choose COD as it is low risk for those trying eCommerce for the first time.
Conclusion
Cash on Delivery helps bridge the gap between modern eCommerce and traditional payment, making it a favourite for Indian shoppers. It offers convenience and trust and effectively manages planning and precautions. However, COD does have its own disadvantages, such as higher return rates, delayed payments, and logistics challenges that can impact cash flow and operations. When implemented thoughtfully, COD is a powerful tool for attracting new customers and increasing sales.