What is Cash on Delivery? Pros, Risks, and Realities for Businesses, E-commerce brands and Customers

Cash on Delivery (COD) or Payment on Delivery (POD) is one of those things that looks simple—until you're the one chasing unpaid deliveries.

It’s been the go-to option for millions of people buying things online. You place an order, a rider or delivery personnel shows up, you hand them cash or pay by other means, and that’s it. Just “see the goods, pay on the spot.”

But behind that simplicity is a real mess of logistics, risks, and tough choices for small businesses.

So let’s break it down properly — what Cash on Delivery really means for you as a vendor or customer in today’s market.

What is Cash on Delivery?

Cash on Delivery (COD) or Payment on delivery is a payment method where the customer pays for a product only when it arrives at their doorstep.

That payment could be in:

• Physical cash (still common in many cities)
• POS (if the rider carries a terminal)
• Bank transfer (done on the spot)

Until payment is made, the product still legally “belongs” to the vendor or delivery company — and the rider is just holding it. If the customer refuses to pay or isn’t around, the item goes back. No money exchanged. No deal closed.

🔁 A simple example:

Let’s say you run a skincare brand in Port Harcourt, Nigeria, and someone places an order for ₦10,000 worth of products via WhatsApp.

You package the order and hand it to your dispatch team. When the assigned rider gets there, the customer checks the bag and gives them the money. The rider returns the cash (or transfers it) to you at the end of the day.

Why Cash On Delivery Became Popular (Especially in Developing Markets)

If you’re selling online in countries like Nigeria, Ghana, or Kenya, you can’t ignore Cash on Delivery.

It’s a trust builder.

Here’s why it took off:

1. Low Trust in Online Payments

For years, people have been told “Don’t send money to strangers online”.

Bank scams, fake vendors, and orders that they never received has made many customers cautious. Cash on delivery feels safer: “I’ll only pay if it shows up at my door.”

2. Unreliable Banking & Internet

In markets where bank transfers can be delayed and card payments fail mid-transaction, COD feels more dependable.

Even in big cities, poor networks can stop a payment from going through, but cash works anywhere.

3. Cultural Buying Habits

Before e-commerce, local markets were the norm — you inspect what you’re buying before parting with your money. Cash on delivery mimics that experience.

4. Impulse Buying on Social Media

When someone sees a Facebook or Instagram ad for a product they’ve never tried, they’re more likely to order if they can pay at delivery.

It lowers the perceived risk of “losing money to a fake vendor.”

Bottom line: COD thrives because it meets customers where they are—cautious, sometimes offline, and skeptical of sending money before getting the goods.

How the Cash on Delivery Process Actually Works Behind the Scenes

On the surface, COD looks like:

“Customer orders. Rider delivers. Customer pays.”

But in reality, it’s a chain of small but critical steps. Here's how to cash on delivery process flows:

Step 1 — Order Confirmation

Once the order is received, the seller confirms:

• Product availability
• Delivery location
• Payment type (cash, POS, or transfer on delivery)

With Cash on delivery (COD), this step is extra important, it filters out unserious buyers before anything is shipped.

Step 2 — Package & Label

The seller prepares the product:

• Secure packaging (especially for fragile or perishable goods)
• Clear labeling with the customer’s details
• Payment terms (“COD – Amount”) marked for the rider or delivery agent

Step 3 — Assigning a Rider or Delivery agent

Find a reliable courier or delivery agent to pick up the package and deliver fast
This keeps COD deliveries moving fast, reducing the window where a customer can change their mind.

Step 4 — Delivery Attempt

The rider or delivery agent travels to the customer’s location.

Upon arrival:

• The customer inspects the goods.
• If satisfied, they pay in cash, via POS, or bank transfer.
• If they refuse, the package is marked as “failed delivery” and returned.

Step 5 — Cash Remittance

At the end of the delivery run, the rider, delivery personnel or logistics provider remits collected payments to the seller, depending on the arrangement.

Why speed matters in COD:

The faster the delivery, the higher the payment success rate. Delay kills urgency — and customers who wait too long are more likely to reject the order.

Benefits & Advantages of Cash on Delivery for Businesses & Customers

Cash on delivery isn’t just a payment method; it’s a trust tool and a sales driver when used well. Here’s why it works for both sides.

For Businesses (The Seller)

1. Reaches More Customers

It opens your doors to buyers who don’t use cards or don’t trust paying online.

2. Boosts First-Time Orders

New customers are more likely to try your product if they can pay only after receiving it.

3. Mimics the In-Store Experience

Cash on Delivery allows customers to inspect goods before paying, similar to a physical shop.

4. Competitive Advantage in Some Markets

In regions where competitors don’t offer COD, it can set your store apart.

For Customers (The Buyer)

1. Risk-Free Shopping

You only part with your money after seeing the product.

2. Flexibility in Payment Method

Depending on the seller, payment can be cash, card, or transfer — but only at the point of delivery.

3. No Need for Online Payment Setup

Customers without active online banking or cards can still buy.

4. Trust & Assurance

Especially for high-value or fragile items, COD provides peace of mind.

The Downsides & Risks of COD (and How Businesses Can Minimize Them)

While Cash on delivery can boost sales, it also comes with headaches that many new vendors and businesses underestimate. It opens doors to cash on delivery scams, unserious customers, bad actors and more. Here's how to handle them;

1. Failed Deliveries

A customer can simply refuse to pay when the order arrives; maybe they changed their mind, found it cheaper elsewhere, or just weren’t serious when ordering.

Impact: The seller loses both time and delivery costs.

💡 Minimize it by:

• Calling or messaging customers to confirm orders before shipping.
• Requiring a small deposit for high-value orders.

2. High Return & Restocking Costs

When an order comes back unpaid, you still absorb packaging costs, delivery fees, and, in some cases, product damage or spoilage.

💡 Minimize it by:

• Limiting COD to certain product categories.
• Using more durable packaging to protect returned goods.

3. Cash Handling Risks

Riders or delivery staff carrying large amounts of cash can face security threats.

Even in safer areas, handling cash adds counting errors and reconciliation delays.

💡 Minimize it by:

• Encouraging card or transfer on delivery.
• Setting cash collection limits per delivery run.

4. Delayed Cash Flow

With COD, payment isn’t instant. If delivery takes days and returns happen, your cash cycle can slow down dramatically.

💡 Minimize it by:

• Tracking COD performance and reducing it for unreliable areas.
• Offering prepaid incentives to loyal customers.

5. Fraud & Fake Orders

Some people place orders with no intent to buy — wasting your resources.

💡 Minimize it by:

• Adding verification steps for new customers.
• Using delivery partners that support order confirmation calls.

Cash on delivery can work well, but only if sellers actively manage these risks. Left unchecked, it can drain profits instead of boosting sales.

When COD Still Makes Sense in Today’s Market

Even as more businesses push for prepaid orders, Cash on delivery still has a place, but it works best in specific situations.

1. First-Time Customers

When someone is ordering from you for the first time, Payment on delivery can lower their hesitation. If they like the experience, they may switch to prepaid next time.

2. Lower-Ticket Items

For items under a certain value (e.g., under $20 or ₦20,000), Cash on delivery can be worth the risk. The loss from a failed delivery is easier to absorb.

3. Social Media Impulse Buys

People scrolling Instagram or Facebook may order on a whim. Cash on delivery makes it easier for them to commit without going through a payment gateway.

4. Areas with Low Digital Payment Adoption

In some regions, digital banking penetration is still low. COD can be the only way to reach these customers.

5. Relationship-Driven Sales

For vendors with repeat customers in the same city, Cash on delivery can be a trust-building option — especially if deliveries are done in person.

Practical Tips to Reduce Cash on Delivery (COD) Risks Without Losing Sales

Switching off COD completely can hurt your sales, but leaving it wide open can hurt your margins. The sweet spot is in managing it smartly.

1. Pre-Delivery Confirmation

• Call, text, or email customers to confirm:
• Order details
• Delivery time
• Payment method

This alone filters out a lot of unserious buyers.

2. Set Order Value Limits

Limit COD to orders below a certain amount. High-ticket items are better handled with partial or full prepayment.

3. Use Partial Payments

Ask for a small deposit upfront. It locks in commitment without removing the safety net customers want.

4. Train Delivery Staff

Teach them how to handle refusals, process payments correctly, and check goods in front of the customer.

5. Track Customer History

Keep records of repeat offenders who reject deliveries — and restrict COD for them.

6. Encourage Digital Payments on Delivery

Even if you allow Cash on Delivery, the payment method must not be cash, offering POS or instant transfer reduces the need to handle large amounts of cash.

7. Review & Adjust Regularly

Check your COD acceptance rate, failed delivery rate, and return costs every month. If the numbers get worse, tighten the rules.

Handled properly, COD can still grow your business without draining your profits — it’s all about controlling the variables.

In Conclusion: Use Cash On Delivery Wisely

Cash on Delivery is neither a relic of the past nor the perfect solution for every sale.

It’s simply a tool, powerful when it builds trust and closes more orders, but costly when mismanaged.

The businesses winning with COD today:

• Use it selectively, not as the default for everyone.
• Track performance and cut it where it bleeds money.
• Combine it with faster, more reliable delivery to reduce cancellations.

For customers, Paying on delivery remains a safety net. For sellers, it’s a bridge, one that can connect first-time buyers to long-term loyalty if handled well.