Traditional Cash on Delivery
Cash on Delivery, or Collect on Delivery, or COD as it is commonly abbreviated, is a valuable payment acceptance method for some suppliers to implement when managing customer payments. Suppliers may choose to provide certain customers with COD as their preferred payment option for its quick onboarding process, and its ability to offer smaller or riskier accounts with a path towards becoming credit customers. In this way, the customer receives the product they need to run their business, while the supplier maintains cash flow that is not dependant on the customer’s credit worthiness. Similarly, COD guarantees suppliers will receive payment; with no payment terms that must be agreed to, and with lower minimum order requirements, suppliers are typically more accepting of purchase orders that meet both of these conditions.
However, as this year’s call to work remotely, or to be socially distant if you do have to work on premises has taught us, providing payment at time of delivery isn’t always safe and it isn’t always possible.
What’s Wrong With COD?
COD carries with it several risks that have the potential to harm a supplier’s business. Here are 4 pain points in the COD collections process that are cause for concern for suppliers today:
1. COD Impedes Cash Flow
For suppliers accepting offline COD payments such as cash or checks, there is often a delay between receiving funds from their customers and depositing them into their bank account. As a result, there is a period of time in which these suppliers are unable to access new funds and apply it to their business. COD is known to create barriers to cash flow and thus should be avoided where possible, so as to ensure suppliers maintain business continuity, can access their funds, and use them accordingly.
2. Offline Payment Methods Impact Cash Application
“Offline” payment methods like cash and checks add significant complexity to the collections process for suppliers, and directly impact their ability to apply payments to invoices. For each offline payment method utilized by their COD customers, suppliers may have different processes for how they apply payments; how a supplier applies check payments may be different from how they apply cash payments, which may be different from how they handle credit card payments. Consequently, finance teams tend to spend a lot of time processing and applying customer payments. Offline payment methods like checks also carry a high margin for human error. Misspelled names, incorrect payment amounts, or wrong check dates all directly impact a supplier’s ability to apply their customer’s payment and may lead to future – possibly more substantial – financial issues.
3. Security & Safety Concern for Delivery Personnel
Collection on delivery carries with it several security and safety concerns for suppliers and their customers. In the case of cash transactions, there is a security concern for your customers and your delivery personnel. Handling a large amount of cash could potentially leave your customers or delivery team vulnerable to the risk of theft. No matter how large or small the value of the exchange may be, it’s simply not worth it to potentially endanger your team, your customers or your business.
4. COVID-19 and the Risk of Disease
As the world continues dealing with COVID-19, accepting payments in-person in the form of checks or cash puts people at risk of contracting or spreading the virus. In the age of technology and online payment solutions, there really is no reason suppliers should continue relying on face-to-face interactions and offline payment methods.
What are the alternatives to traditional COD?
There is a better way to manage COD customers that still provides the benefits of COD – quick onboarding, no credit risk, etc. – but removes the risky in-person interaction and automatically reconciles payments to a supplier’s bank account. We call it eCOD (Electronic Cash on Delivery) and I’ll explain it further in Part 2 of this blog series.