E-commerce, simply known as ‘online shopping’ to consumers, has changed the buying behavior.
A flashback into the period ten years ago and you could only find local markets being flooded with customers for shopping. Shopping for festive occasions simply meant long hours of waiting in queues to get what you want.
Fast forward to a more recent time and you would agree that flash sales on online marketplaces have become a festive offering in themselves, with millions of buyers waiting to benefit from available discounts and a wider range of products to choose from.
With easy access to smartphones and the Internet, online shopping has been democratized. Still, there is something that hasn’t changed – our inclinations towards cash payment. The proportion of unbanked consumers in India and lower penetration of credit cards can be considered the reasons behind the popularity of cash on delivery.
Currently, the e-commerce industry is going through an evolution resulting in an unprecedented growth towards the mark of $200 billion by 2027. With this growth, the likelihood of online orders made with cash on delivery option also increases.
If you have plans to dive into online selling, you must understand why COD is quite popular in India as a payment option, the related challenges, and how to overcome them.
What is cash on delivery?
Cash on delivery is a payment mode in which a customer buys a product online but chooses to pay for the purchase at the time of delivery instead of paying for it in advance. It is also known as ‘cash on demand’ or ‘collect on delivery’. In most cases, the customer chooses to pay cash for the purchase, hence the name.
The most commonly known definition of cash on delivery refers to it as a way to buy things online while paying for them in cash.
Understanding why Indians feel more connected to cash on delivery
Even though the number of online shoppers in India is growing day by day, the usage of various payment options including credit or debit cards, UPI, and digital wallets is still limited. As per the distribution statistics for online payment methods, cash is currently one of the most-used payment methods chosen by Indian shoppers, representing 17% of the total online purchases in the country.
Also, a majority of consumers from smaller towns in India prefer to select cash on delivery over other payment methods. This can be because of:
- Rising risk of online scams
- Familiarity with making payments in cash
- Lack of dependency on payment cards
- Post-purchase anxiety till the ordered items are received
- Ease and convenience of transactions made in cash
- No need to worry about receiving a damaged or wrong product
- No need to deal with refunds
Simply put, cash on delivery gives online shoppers the much-needed assurance and comfort. Since they get hold of the product before paying for it, it also encourages them to shop online.
Cash on delivery vs. cash in advance: comparison
Cash in advance is yet another payment option offered by online sellers to customers. However, it slightly differs from the COD model. Here, the buyer is asked to pay for goods/services before the ordered items are shipped. It is often used to eliminate the risk of non-payment for sellers like you and also protects from lost money for goods shipped without payment.
Recommended Read: How to Define Shipping Strategy for a Small-scale Online Store
How does cash on delivery work?
Here are some of the common steps involved in the fulfillment of cash on delivery orders:
- Firstly, a shopper places an order online and selects cash on delivery payment option after exploring your product catalog.
- He/she chooses to pay for the items in cash at the time of delivery with or without inspecting the items delivered.
- In case of damaged goods or any other concern, the customer gets the option to place a return/refund request.
If you have plans to start an e-commerce store, offering cash on delivery as one of the payment methods in your store has its benefits.
Benefits of cash on delivery for your customers
Given below are some of the advantages you can avail by offering cash on delivery as a payment option:
Increase in impulse buying
Many Indian consumers who prefer buying things online are always up on the online stores, browsing through different kinds of products they need. The availability of cash on delivery option for payments helps them in making purchases in a jiffy. While they need to complete the checkout process to make online payments, they can place orders quickly with the COD option.
Here, the faster checkout encourages the buyers for impulse shopping.
Better outreach to more prospects
A significant proportion of shoppers in India, especially in Tier 2 and Tier 3 cities, prefer paying in cash for products bought online. Their apprehension towards online payments also implies business opportunities for you that you can tap into by supporting cash on delivery payment mode.
Increase in customer loyalty
When a brand does not ask for the payment of products purchased upfront, it helps build trust with the customers. They will think of your brand as the one that focuses on delivering the product first and then asking for payment. By building customer loyalty this way with the help of cash on delivery, you can eventually ask them to pay online for future purchases.
Now that you know what you can get by offering cash on delivery with online selling, you must also know that:
- Cash on delivery payments reach you at a later time and may restrict the cash flow.
- You need to plan for a well-defined way to deal with refund/return requests related to a COD order. Most third-party logistics service providers charge an extra fee for reverse logistics.
Should you offer cash on delivery as a payment option?
The selection of cash on delivery as a payment option for your online business should be based on your business type, the kind of products you sell online, and targeted audience.
For example, if you already know that the majority of your customers prefer making pre-payments for the purchases, you need not worry about including cash on delivery into the list of supported payment options. In such cases, what matters more is the right selection of a payment gateway based on payment security and timely settlements into your bank account.
As per statistics, cash in circulation has reached an all-time high of Rs. 31 lakh crore as of Mar 18, 2022 – a 9.2% increase from an year-ago period. This has happened despite a surge in digital payment transactions.
Key takeaways
- Cash on delivery is when a buyer chooses to pay for goods or services at the time of their delivery.
- Cash on delivery payment option can help newly-established businesses attract customers in lower tier cities. On the other hand, it gives customers some time to collect or save cash to pay for their orders at the time of delivery.
- You can accept online payments even for COD orders by using payment links.
Offer maximum payment options with Paytm Payment Gateway
Whether or not to have cash on delivery as an available payment option on your online store may seem like a big challenge. But it is not when you have selected the best payment gateway that already includes the widest range of payment sources.
Switch to Paytm Payment Gateway which enables you to accept payments from a wide range of payment sources. These include credit cards, debit cards, net banking, UPI, and the two exclusive options – Paytm Wallet and Paytm Postpaid. On one hand, there is Paytm Wallet, used and trusted by millions of Indian consumers. On the other, there is Paytm Postpaid, supporting the current Buy Now Pay Later trend in the country. You can include cash on delivery along with these payment options.
FAQs
What is the meaning of cash on delivery?
Cash on delivery is when a buyer pays for the ordered item in cash when it gets delivered rather than prepaying for it at the time of placing the order.
How does the cash on delivery model work?
Here, a customer places an order online with COD as the payment option. Once the order is placed, the seller prepares an invoice, attaches it to the parcel, and then ships the same to the customer address. Based on the invoice amount, the customer pays cash to the delivery partner.
What are examples of cash on delivery?
A common example of cash on delivery is when customers pay for food items delivered to their home and pay for them once they are delivered at the doorstep.
Is cash on delivery safe?
Cash on delivery is deemed safe but there are certain risks involved like the risk of non-payment of orders.
