Cash on delivery services (COD) offer numerous benefits for your business. With COD, you can attract cash-paying customers, expand your customer base, and boost sales. It reduces the risk of fraud by collecting payments directly from delivery personnel, ensuring secure transactions. Emerging markets such as Tanzania, Egypt, Pakistan, Ghana, and Uganda are hotspots for Cash-on-Delivery payment options.
However, before you offer COD services, you’ll need to manage your working capital and accurately calculate Cash-on-Delivery. Here’s an easy step-by-step process.
The Number Of Deliveries: The higher the number of deliveries per month, the lower the cost due to economies of scale.
The Cost Per Delivery: The average cost per delivery charged by the Cash-on-Delivery service.
The Size Of The Transaction: Consider the average size of transactions per month. The larger the transaction, the greater the financial implications for each delivery. Analysing this metric can help you gauge the profitability of your COD service.
Missed Deliveries And Their Price: With Cash-on-Delivery, there’s always the possibility that the customer might cancel the delivery if the product isn’t up to the mark since they have not paid upfront. There can also be issues if the delivery address doesn’t match the one written on the order. Lastly, missed deliveries can also happen due to uncontrollable events.
Days To Receivables: Evaluate the time your COD service takes to deposit the collected amounts into your account. A shorter duration benefits your cash flow, ensuring faster access to funds for other business needs.
Opportunity Cost For Receivables: Consider the opportunity cost associated with delayed receivables. The longer it takes to receive payment, the more interest earnings you potentially miss out on. Assess this cost and explore ways to optimise your cash flow management.
Step 1: Determine the cost of finance for the cash-on-delivery process.
Step 2: Determine the average basket price.
Step 3: Determine the average delivery cost per delivery.
Step 4: Determine the days to payables (e.g. Two weeks, one month, six months).
Step 5: Determine the percentage of missed deliveries.
Step 6: Determine the number of transactions in a period, e.g. weekly, monthly, quarterly.
We suggest monthly for better calculation.
Step 7: Determine the total revenue
Step 8: All you need to do now is add the values to our calculator and get the total cost.
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