1. Operational Complexity: This is by far, one of the most highlighted disadvantages of offering cash on delivery as a payment option. Primarily because managing cash transactions adds complexity to an eCommerce business’ operations. It involves constant coordination with the logistics partners for cash collection, continuous payment reconciliation, and handling returns or refunds, which can be time-consuming and resource-intensive.
2. Risk Of Non-Payment And Fraud: After operational complexity, non-payment and fraud risk is what usually makes eCommerce brands not offer COD as a payment option on their websites.
COD basically exposes an online business to the risk of non-payment or fraudulent activities. Meaning, some shoppers may refuse to accept the delivery or provide invalid contact details, which may lead to non-delivery or failed deliveries. Such orders result in higher return to origin (RTO) rate which impacts a brand’s bottom line.
Moreover, with every failed or rejected delivery, a business has to incur many additional costs including
- Reverse logistics
- Manage inventory in the books
- blocked/stuck inventory in pipeline
- Bearing additional operational cost such as quality testing, inventory marking, re-packaging, etc.
- Enduring the risk of product loss or damage during transit
3. Higher Fulfilment Costs: COD transactions often come with higher fulfilment costs when compared to prepaid orders. The additional logistics involved in cash collection and processing not only increases operational expenses for a business but impacts profit margins as well.
4. Delayed Cash Flow: With COD, eCommerce brands experience delayed cash flow. Unlike prepaid transactions where payments are received upfront, cash payments are collected post-delivery, which results in longer payment cycles for online businesses. Such a delay affects the company’s working capital and hinders their business growth.
5. Impact On Customer Experience: Despite its advantages, cash on delivery may not always result in the best customer experience. That’s because delays in delivery due to cash handling, unavailability of shoppers at the time of delivery, or unexpected rejections by shoppers can lead to dissatisfaction and negatively impact brand perception.
