Owners of online stores know that there’s a lot of competition out there. That’s why it’s important to make things as easy as possible for your customers so other businesses don’t nab them.
One of the ways to do this is providing them with a cash on delivery option. This is where customers can pay for goods when they receive the delivery, rather than when they place the order. Cash on delivery could be called a virtual red carpet because it immediately welcomes people who might not have been able to buy from you without it.
But you might not be aware of what cash on delivery means, or what your online store can gain from offering it. Don’t despair! We’re here to answer all your questions to help you decide whether this option is right for you. Let’s go!
Cash on delivery (COD) is a transaction where the customer pays for goods at the time they are delivered. It’s a bit of a misnomer though – because cash is not the only payment format included in COD.
You can allow for a range of payment options including cards, e-wallets, or kick it old-school with checks too.
Advice from the Experts
Top Tip: Use or integrate analytics to separate customers with a history of not paying their COD orders.
Cash in advance is what we know as the traditional way of paying. When a customer orders goods, they provide the payment upfront before the goods are even dispatched. It’s the method that’s built into having an online store.
Most businesses prefer cash in advance because it guarantees the business gets the money, and any potential problems can be solved before the goods are handed over forever.
Cash in advance will always require automation of some kind on your website. Not only will you need to electronically keep up with the end-to-end buying process, but electronic payments will need to be enabled to accept payments online.
On the other hand, there are good reasons why customers might prefer cash on delivery:
- We’re living in trying economic times and people have tighter budgets. They might not have the cash at that very moment they need to order something. So cash on delivery still gives them the option of securing the item while having time to get money together.
- Similarly, it allows your customers to hold onto their money while there’s delayed shipping. Say you’re having a flash sale. If your inventory runs out fast, you’ll have to re-order which will probably mean fulfillment delays. Customers might not want to hand over money now knowing that they might not receive the item for weeks or months, so they abandon it. Cash on delivery avoids that.
Advice from the Experts
Top Tip: Always have the customer confirm their delivery location and phone number. If they order when they aren’t at home, they might not realize you don’t have their current address.
There are some obvious advantages to cash on delivery:
Some customers simply prefer to use cash. They might not have credit cards. They might use a cash envelope budget system. Maybe they don’t like putting their details online because of fraud risk. You’d be meeting a major preference for them.
You look more trustworthy if you offer cash on delivery. It’s hard to be dodgy if you don’t take money till the customer has the items in their possession. Funnily enough, this exact thing happened back in 1873 when Montgomery Ward stormed onto the scene with its enormous catalogue.
At first the press accused the company of being deadbeats because it was so different! But this soon changed once the company offered and made good on its cash on delivery promises. Their popularity skyrocketed.
Your customers will probably be able to buy more from you. They know exactly how long they have to get the money together before delivery. They wouldn’t necessarily be able to order those extra items if they had to pay upfront.
They are also able to pay with cards, so equip your delivery person with a card reader that takes the widest variety of cards available as well as electronic wallets.
Though in many ways it’s not as ideal as payment before delivery, it’s still preferable to invoicing a customer after delivery and hoping they pay on time (if at all!). And it’s certainly preferable to a customer not placing an order at all because they don’t have the money immediately available.
Advice from the Experts
Top Tip: Remember with cash on delivery that you’ll have to have your own stock suppliers paid before you get the money for it from your customers!
So what are the cons of cash on delivery that you should be aware of?
There’s a risk of customers canceling their orders. They’ve got nothing to lose, and because they haven’t paid anything yet, they’ve got the time to check whether your competition sells the same thing for less.
If a decent percentage of your customers use cash on delivery, you might experience cash uncertainty or cash flow problems because there are no guarantees. Customers can back out. There could be a month with a lot of returns. Unless you have a backup supply of cash ready, your own orders with your suppliers could be at risk of not getting paid on time.
There’s nothing that guarantees that you’ll get your money. They might discover just before delivery that they don’t have enough money. Ask a pizza delivery person – they mention that customers who are short will demand they take the smaller amount of money.
Be certain your delivery person records a NDR – that’s a Non Delivery Reason – or even better, allow the customer to give you their NDR on your platform or through a service number/email.
Another problem is you’ll probably end up paying a commission (or delivery fee) and spend more time in communication with your delivery company. You’ll need to ensure the company is honest and reliable. A bad delivery time (especially when food is involved) is usually the main reason why items have been refused. That means you’re out of pocket.
Advice from the Experts
Top Tip: The practicality of cash on delivery might change depending on the customer’s location. You can specify which postcodes qualify.
Your customer places an order from your online store, and will choose the cash on delivery payment option.
Whether automatically or by hand, your store will create an invoice which will be sent to the customer so they know exactly how much money to have ready at delivery.
If you or your employees don’t deliver goods yourself, then the third party delivery company will either directly dispatch and deliver, or pickup and then deliver your goods.
Then using the best method (email, text, live tracking, or something else) your customer will stay updated on the status of their order while they get their payments together.
When the goods are delivered, your customer pays. It can be with cash, check, or if your delivery person has a portable reader, it can be card or wallet payment.
The customer gets their goods. They might have to sign something confirming delivery of the complete order.
And bada-bing, that’s it!
Cash on delivery is a great way to build trust in your online store and make your goods more accessible to a wider range of people.
Though it has its challenges, as long as you’re prepared and organized, you’ll be able to find out how cash on delivery could best work for your business.
Don’t be afraid to roll out the red carpet!