Introduction to Cash on Delivery (COD)
Cash on Delivery is a payment gateway that requires payment be made only at the time of delivery of the goods rather than in advance. This gateway enables payment as a form of convenience, instead of using credit cards to pay immediately when the product is purchased.
Though termed ‘Cash’ on Delivery, COD has broadened to accommodate ‘Collect’ on Delivery since payments are encouraged in any form via bank, money apps & wallets, and only when the required goods have arrived at the recipient’s doorstep.
Understanding Cash on Delivery
Cash on Delivery is a popular payment option among internet retailers and e-commerce platforms. It offers the option to customers to make a payment only at the time of delivery, which also gives them time to accommodate funds. It also provides the convenience of paying after accepting the goods received.
For the sellers that are the companies and sites accept payments via COD, they each affect the entity’s accounting differently. By GAAP regulations, public companies use accrual method of accounting and while private companies are free to use cash or accrual accounting. It affects their financial statements differently.
Factors to Consider
By accounting benefits, COD greatly reduces the risk of failures in payments and shortens the days receivable. The promise of delivery of goods before a due date, while extracting a term from the recipient that the payment will be honoured on said date, is agreed upon when the purchase is made.
It also provides the customer with time to arrange for funds, or make it more promising and convenient for them.
Return of orders might also increase by virtue of increase in impulse purchases because making the payment is not immediate.
Cash on Delivery also prevents identity fraud, card disputes and other problems with immediate payment at time of purchase.
Cash on Delivery has better advantages over Cash in Advance, for both buyers and sellers. However, the use and preference of it may change with the volume of goods, the parties involved in the transaction and the location of the delivery.
