Don’t Use Cash On Delivery (COD) Until You Know These Facts! (2023)
Cash on delivery method for online business demand is increasing. Unfortunately, most merchants failed to do cash on delivery in Malaysia properly. Here’s a few important facts on COD payment before applying it to your business.
What Is Cash On Delivery?
A cash on delivery (COD) is a payment method that allows customers to pay their ordered goods at the time of delivery. The payment is paid directly in cash terms to the delivery person and it’ll be transferred directly to the merchant a few days later.
How Cash On Delivery Works?
Here’s how Cash On Delivery works in general:
- Customers successfully place an order through an e-commerce shopping platform or over the phone.
- Customers pay their order upon delivery. If the customer decides not to keep the item, they have the right to return it back to the seller without any payment. In some cases, customers still need to bear the delivery charges before returning.
The steps may differ whether the item bought is perishable (example food) or non-perishable.
Cash On Delivery Examples in Malaysia
In Malaysia, there are several services that offer Cash On Delivery terms. The most used by merchants are:
- Pos Laju
- Flash Express
- Ninja Van
- J&T Express
- DHL e-commerce
Check out their Cash On Delivery rates here.
Why Demand For Cash On Delivery Is Increasing?
Cash On Delivery (COD) gives the buyer the rights to inspect what they ordered upon delivery before making a payment. This makes online shopping easier and more secure. There are also two other pushing factors making this payment method to become more popular.
1. Fastest Way To Buy/Sell
Customers familiar with cash payments. With no credit burden and able to avoid the risk of spending money on a product that never arrives, they have the confidence to shop more in the future.
2. Some Merchants Prefer Cash
Buy/sell transaction completed upon payment, making the cash method preferred by merchants. Some even think that it is necessary to offer COD payment to build customer’s trust.
Pros and Cons of COD Payment
If you are considering to offer Cash On Delivery payment methods into your business, here’s the pro and cons to help you decide.
Pros of Cash On Delivery
For consumers, Cash On Delivery option can improve their cash flow management and they are able to avoid the risk of paying inaccurate orders. Along the way, merchants are able to retain customer’s trust and increase the chance to receive more orders in the future.
1. Less Credit Worthy
There is still a large portion of the Malaysian population that relies on conventional banking rather than online banking. These potential buyers preferred cash as they preferred not to burden their credit worth. It’s a buyer category that shouldn’t be overlooked.
2. Collect Cash Faster
In certain part of Malaysia, especially in rural areas, customers depend heavily on straight forward cash transactions. This is actually an advantage where merchants have the opportunity to increase their completed transaction rate. In the meantime, they are also able to reach more customers even though they have limited access to the internet.
3. No Need Upfront Payment
With COD payment method, buyers are able to place an order without any initial upfront. This gives a sense of security where they can avoid paying for something that doesn’t meet their expectation. This definitely will build trust to the merchant and positively a returning customer.
Cons of Cash On Delivery
Cash On Delivery puts merchants in a risky situation, especially retailers. This is because there is no guarantee that they’ll get paid after producing and delivering the goods, consequently adding to your revenue loss. Here’s a few risks that merchants are exposed to.
1. Delay in Delivery Schedule
Customers may take their time inspecting the goods that they received or facing difficulty in completing the payment. This will cause a delay for the whole delivery trip of the day.
2. Relies on Paper-Based Payment Method
Cash based payment has a tendency of having additional steps and processes. Buyers may be short of cash upon delivery and merchants need to spend time cashing in via a cash deposit machine. Not to mention manual processes to keep track payments.
3. Scam and Robbery
There are cases in Malaysia where COD payments are easily linked to a scam and robbery. Scammers taking advantage of customers that are nervous or not tracking their purchases.
Why Cash On Delivery Isn’t Suitable For Business
Cash On Delivery carries a financial risk for business. This is because the buying and selling transactions are only completed when the customer finally decides to pay. So business are open to risks such as:
Since Cash On Delivery relies on customers’ acceptance upon delivery, merchants won’t receive cash at real time. The payment will be remitted by the delivery services a few days later, creating a cash flow issue and also a risk of an untallied amount received.
COD has a higher risk of delivery refusal, where customers decide to accept their order, causing an increase of return rates. It is not friendly for merchants offering perishable goods. On top of return shipping cost, merchants have to bear spoiled goods.
During the COVID-19 pandemic, there were a number of services that halted Cash On Delivery terms. Even in a post-pandemic environment, there are locations that limit the door-to-door delivery access. This could cause delays all together.
Not only that, merchants facilitating Cash On Delivery creates a lot of manual processes. A delivery person must keep track of various procedures before providing information to their accounting staff, who will then manually process and reconcile it to the right customer record. All in all, it’s a hectic and lengthy process.
How To Do Cash On Delivery In Malaysia
The easiest way to offer Cash On Delivery in Malaysia is at your own sales channel. Here’s a few quick step:
1. Market & Sell an Item Online
Start selling your product via any sales channel that you prefer. If you are using an e-commerce platform or having your own sales page, make sure it can be integrated with logistic services that offer COD payments. There are also delivery aggregators that offer the same like Delyva.
Set Payment Method as COD Payment Only
Set your payment method as Cash On Delivery Payment only. If your site is integrated with Delyva, customers are able to select their preferred service.
Meet & Receive Payment From Buyer
Deliver the goods and receive payment directly from them. If you are using logistic services, you’ll receive it in a few days’ time.
In Malaysia, COD payment method is still appealing to customers and merchants should do it right. To reduce risk involved in Cash On Delivery, merchants should adopt a few measured steps so that they can continue reaching more customers and earn more revenue.