How Does a COD Work?

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If you sell something online or by phone, you'll typically ask your customers to pay in advance before you ship the product. Some companies give a different option -- collect on delivery. If you offer this service, the customer pays for the item when they receive it. This may be useful if they don't have a credit card or don't use online payment systems. It may also build trust with new customers who have not dealt with your company before, as they can check their order before they pay for it.

Customer Makes a Purchase

If you want to offer COD as an option, you'll have to build it into your payment system. Some companies do this online; others require customers to make a phone order to use the method of payment. You then arrange delivery of the item on the premise that the customer will pay when it is delivered.

Collecting COD Payments

Companies typically use shipping companies to manage the COD process. They act as an intermediary between you and the customer, taking payment for the order when they deliver it. You'll usually need to print the collection amount on the shipping label. The shipping company then pays you for the sold item or returns it if the customer does not pay.

COD Shipment Policies

Upon delivery, most shipping companies will accept cashier's checks, money orders, business checks or personal checks as forms of payment. FedEx is the only ground shipping company that will accept cash as a form of payment. Generally, the company will make three attempts to deliver the package to the customer. If after the third attempt the package is not delivered successfully, the shipping company returns the product to the seller. You assume all risks related to payment, such as a bad check.

Considerations

You must consider all of the risks and rewards associated with accepting COD as a form of payment. This is not a free service; it will add to your costs. If you accept COD, you are risking product returns due to failed shipments and bounced checks. CODs may also be difficult to account for on your financial statements as you receive payment after you deliver the product as opposed to prior to delivery. In contrast, the benefit associated with accepting COD as a form of payment is that you provide more options to your customers and that may entice customers to purchase from you instead of the competition.

References

About the Author

E.M. Rawes is a professional writer specializing in business, finance, mathematical and social sciences topics. She completed her studies at the University of Maryland, where she earned her Bachelor of Science. During her time working in workforce management and as a financial analyst, she reinforced her business and financial know-how.

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