When starting a new firm, one of the first jobs you must understand is sales invoicing, and in particular, the different sorts of transactions. Choosing the most appropriate transaction for your company can help you be paid on time and minimize cash flow problems. COD (cash on delivery) is an example of a transaction that is often used.

Examine what cash on delivery (COD) is, why it may be beneficial for your company to offer COD, and the advantages and downsides of adopting it.

Related: Delivery Services in the Philippines

What is COD or Cash On Delivery?

COD (Cash on Delivery) is a transaction in which a buyer pays for a goods at the time of delivery rather than at the time of ordering. COD is a term that is most commonly heard in online sales, but it can also refer to collect on delivery or cash on demand.

Purchases made through cash on delivery do not necessitate any payment from the buyer until they receive their goods. At that point, the customer is responsible for paying the total sum owed. The majority of service providers do not accept partial payments for cash on delivery transactions.

Despite the fact that it is referred to as “cash on delivery,” payment does not necessarily have to be made in cash. Most service providers also accept checks and electronic payments, which are accepted by the vast majority. When a consumer chooses a COD transaction, the delivery person is instructed by a unique tag on the box to collect payment at the time of delivery.

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How is COD Different From Standard Invoice?

When it comes to payment arrangements, the difference between COD and normal invoicing is significant. Payment terms are most commonly used in standard invoicing, with the most frequent being NET 30, which means that the customer must pay the business within 30 days after receiving the invoice. The payment term for a COD transaction is cash on delivery, and the entire amount is due at the time of delivery (unless otherwise specified).

Consequently, with COD invoices, you will receive payment more quickly than with normal NET 30 invoices. The most significant difference between COD and conventional invoicing is the shorter time frame between delivery and payment, which results in more prompt payment and more fluid cash flow for the business.

To ensure that your customers understand the payment terms and conditions on a COD invoice, you should be specific about when payment is expected.

See also: How to have a Payment Option in Lazada?

The Benefits of Cash on Delivery

Companies that seek to improve their client relations as well as new enterprises who want to create a solid customer base are both fans of cash on delivery (COD). The following are the key reasons why a firm may accept cash on delivery transactions.

Related: How to Enable COD in Shopee?

New Businesses Accruing Customer Confidence

When it comes to new businesses that do not yet have a loyal customer base, cash on delivery services can help to boost customer confidence in the company. Customers who pay cash on delivery (COD) are more confident in their purchase since they know the company will not take their money unless they have received the product first.

Attract New Customers

New clients who previously were unable to make purchases due to a lack of good credit may be attracted by cash on delivery (COD). Customers can place orders online and then pay in cash at the time of delivery, eliminating the need for a credit card in most situations.

Customers who are hesitant to use online payment methods may be attracted to cash on delivery. Although some purchasers are hesitant to enter their credit card information into an online purchase form for fear that their information will be stolen or that their money would be taken without delivering the product, paying cash on delivery (COD) eliminates this danger.

COD is More Preferred

COD is preferred above other modes of payment. Instead of using credit cards, consider using debit cards. Businesses who want to avoid the expenses associated with processing electronic credit purchases may consider offering cash on delivery (COD). This method ensures that vendors receive their complete money without incurring any additional fees. 

The ability to pay cash on delivery also helps a business avoid various hazards associated with credit payments, such as identity theft.

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Customer Request

Customers’ requests may lead to a business offering cash on delivery (COD) transactions. Customers who know they will be at home for a delivery may want to pay the driver when the package is delivered. COD is another option for customers who prefer a more discreet mode of payment because it does not leave a trace on their credit or bank account history.

How Does Cash on Delivery Work?

In some cases, buyers place an order online and request delivery of their purchases. The consumer does not make a payment at the time of ordering the goods and instead decides to pay cash on delivery as the form of payment. Following the placement of the order, the seller will generate an invoice, which will be attached to the package. The parcel is shipped from the vendor to the address that the buyer has provided to him or her. 

The customer pays the delivery person or shipper in cash or with a credit or debit card. It is then deposited into the bank account of the logistics partner or shipper who provided the COD. After deducting the handling fees, the logistics provider deposits the funds into the seller’s account.

What are the Pros and Cons of Cash on Delivery?

Let’s start with a look at the advantages of paying with cash on delivery. Here are some of the Pros of COD:

Shortened Payment Period

When it comes to COD, the most advantageous element is the shorter payment time, which results in a shorter accounts receivable period as well as increased cash flow and efficiency. The vendor receives more quick payment because the payment is due at the time of delivery rather than within the 30-day period typically required by conventional invoicing.

Protects Cash Flow

It is possible to mandate cash on delivery (COD) transactions on all future purchases if your company has accounts that are frequently in arrears or are habitually late with payments. By doing so, you will be able to continue selling to the client while also collecting guaranteed payment because the consumer must pay before receiving the product.

Prevents Fraud from Occurring

COD is beneficial to both sellers and purchasers in the fight against fraud. The customer feels secure in the knowledge that they will not be required to pay before receiving their merchandise. The seller, on the other hand, is confident that they will get money before delivering their goods.

Given the increased likelihood that the seller will receive their money, cash flow is predictable and dependable, making it easier to plan ahead.

More Impulse Purchases

The increase in impulse purchases is both a benefit and a drawback for consumers. Because payment is not due immediately at the time of the order, customers may be more enticed to make a purchase for which payment is not due until a later date, on the one hand.

However, purchasing on the spur of the moment may result in more frequent delivery refusals, resulting in a loss of delivery and shipping fees.

Here are some of the Cons of COD. Unfortunately, COD does not come without risk. When it comes to employing COD, there are two major drawbacks:

Possibility of Delivery Refusal

With cash on delivery transactions, the chance of delivery refusal grows. When a customer makes a purchase and chooses COD as the payment method, there is no guarantee that the buyer will accept delivery and make the payment when the due date arrives.

If the customer refuses to accept delivery, the seller may be required to pay additional shipping and delivery fees in order to have the merchandise returned to them, which means that they will not only forfeit any profits from the sale, but they may also incur financial losses.

Limits on the Amounts of Sales

The amount of money that can be received per delivery or per day through COD transactions is often limited by the service provider. Your service provider’s limit on the amount of money your consumers can spend may discourage them from making substantial purchases.

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