Exploring Cash on Delivery: Perks, Drawbacks, and Functioning Mechanism
Cash on Delivery (COD) is a payment method where customers pay for goods upon receiving them, often with cash or card. This method offers distinct advantages and disadvantages for both buyers and sellers.
For Sellers
Pros
Sellers benefit from immediate payment upon delivery, improving cash flow and reducing risks of non-payment or bad debt. Additionally, the need for credit checks or financing is eliminated, simplifying transactions and reducing administrative costs. With COD, sellers have a stronger negotiation position as they receive payment upfront, providing financial security.
Cons
However, handling cash physically can increase administrative and operational complexity. There is also the risk of returned or refused goods at delivery, leading to potential losses. Moreover, COD may limit market reach to buyers preferring digital or credit payments.
For Buyers
Pros
Payment only upon receipt of goods reduces the risk of paying for undelivered or unsatisfactory items. COD is also useful for buyers without access to digital payments or credit facilities. Furthermore, it provides a sense of payment control and reduces upfront cash flow strain compared to prepayment.
Cons
Sellers may charge extra for COD services, increasing cost. Potential delays in receiving goods may occur if the delivery and payment process is inefficient. Additionally, COD may not be convenient for buyers expecting digital or contactless payments.
Overall, COD offers a balance of security and convenience but can introduce logistical challenges and higher costs for both parties. Returned purchases in COD do not contribute to revenues and even less to profit, and they entail lost shipping costs. Established companies generally avoid COD risks, preferring credit payment plans with interest and late fees.
COD transactions involve goods being shipped before payment, contrasting with cash in advance where payment is made before shipment. COD shipping allows the customer to defer payment until the time of delivery for longer-term accounts receivable agreements. Under accrual accounting, a company recognizes revenue at the time of the transaction and records the payment in accounts receivable if the payment is deferred.
Interestingly, COD can boost consumer confidence in new companies lacking established brand recognition. However, offering COD can be disadvantageous for sellers due to the possibility of increased return costs and managing refusals.
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Sellers may find that offering COD in conjunction with other digital payment methods can expand their market reach, catering to buyers who prefer various payment options. (liquidity, business, technology)
By providing COD as an option, new and emerging businesses can potentially attract more customers and enhance their token sales during ICOs, as it instills confidence in consumers unfamiliar with these new ventures. (ICO, business, finance)
Traders in cryptocurrency markets can benefit from COD-like arrangements, such as Trade-on-Delivery, where goods or services are traded only upon receipt and confirmation, improving liquidity and mitigating potential risks associated with upfront payments. (trading, technology, liquidity)
