How to optimize Cash on Delivery (CoD)

Team Outreach

April 28, 2022 · 7 min read

In this blog: Learn about the lifecycle of cash on delivery, it’s implications and how the entire process of cash on delivery can be optimized.

E-commerce across the globe surged to a peak ever since the pandemic – with e-commerce startups, quick-commerce solutions and online retailers experiencing an overwhelming growth. The e-commerce share of global retail trade experienced a growth from 14% to 17% in just a matter of three years since consumer behavior shifted towards online shopping. Although COVID-19 induced a digital friendly realm, consumers continued to vouch for Cash on Delivery, over any other digital payment methods. Consequently, existing businesses as well as new entrants in the e-commerce sector continued to – and still continue to establish Cash-on-Delivery (CoD) friendly business models. Why? To gauge revenues and engage with customers.

Understanding the CoD Supply chain

Although businesses strive to accept cash on delivery, whether it be B2B or B2C, however many are yet to optimise their systems. Understanding how the CoD supply chain works is pivotal to understanding how businesses may optimise it. Let’s try to articulate the different touchpoints that come along the way in CoD.

The customer makes a purchase for a good and prefers to choose the CoD method of payment. This means that the customer can purchase the good before a monetary transaction from their wallet.

When the shipment arrives, they receive the goods and make the payment to the delivery executive.

The delivery provider can be a third party logistics provider (mostly used for small scale businesses) or for players such as Amazon, Alibaba, Daraz the company has their own logistics fleet. In case of a 3PL provider, the delivery executive receives payments from multiple buyers. At the end of the day, or after a certain significant amount is collected, every delivery executive makes a run back to the delivery manager – located within a hub. Here, the delivery manager receives cash collections from all of the delivery executives operating within the vicinity and reconciles the cash collected against all the orders. In some cases, cash is accumulated by the 3PL logistics provider over the course of a few days, after which the logistics provider requests for cash to be transferred from the hub to the bank – in a guarded and secure vehicle. Once again, the cash is counted at the bank branch and any discrepancies found in the denominations or the amount, are accounted for within the bank. Once resolved, this accumulated cash is then transferred to the 3PL logistics providers bank account – which then makes the payment online via bank transfer, which may take a few days to reach the supplier or retailer.

In case of a private fleet logistics fleet, the touchpoints remain consistent throughout the process, but the cash deposits are then directly made into the retailer’s or supplier’s account.  

Suppliers and CoD service providers

Although suppliers enjoy the benefits of offering a flexible Cash on Delivery service, and may be extending their hands to reach higher margins, at the same time businesses incur the cost of cash on delivery.

Firstly, the manual cash on delivery process as explained above has multiple human touch points, with cash being transferred from one point to the other with manual entries and settlements. This gives room for human errors, in counting, re-counting, and reconciling. Frauds and discrepancies that may arise as a result of human dependent touch points. This negatively impacts the suppliers, as well as the 3PL service providers since they two parties bear the cost.  

Secondly, for suppliers, the settlement time – from the time of order dispatch up until the amount reflects in the bank account, may take a week or sometimes even more, impacting the working capital cycle.

The Advantages of Cash on Delivery

Cash on delivery opens new avenues for businesses to operate with flexible channels, and also reach to customers that are technology averse. It unlocks the potential for businesses to operate in multiple market segments.

On the other-hand, businesses are able to offer better services to customers. CoD is a convenient payment method for cash based economies of developing countries. For instance, cash on delivery is preferred in Pakistan because of a number of underlying factors – customers can leverage greater control over the buying process, and feel a greater sense of security. 

How to Optimize Cash on Delivery

To continue operating in cash dependent economies, it is essential for businesses to appease customers with cash on deliveries – however, the CoD process doesn’t necessarily need to be complicated and error prone. Automating the process is one way of achieving ultimate optimization and simplifying the CoD process. How do we do that with Loop?

At Loop, we realized the major barriers in managing cash on deliveries:

– The impact of delays on working capital – particularly for startups and small businesses is crucial. Limited access to money while awaiting account settlement, may take days or weeks, consequently increasing the operating capital cycle for businesses.

Manual cash operations at hubs and warehouses, with one personnel, counting, recounting and reconciling cash from multiple deliveries and orders.

Storing cash securely within the business’s premises

– Managing the movement of cash from the Hub/warehouse to the bank with efficiency, safety and security. This involves manual coordination with cash in transit service providers.

However, it doesn’t have to be this way. Loop offers businesses automated cash collections, storage, and transfers – to eliminate manual touch points, allow businesses to access revenue instantly and request for secure cash transfers – all through a single platform. API driven workflows make the process simple, quick, and efficient. It’s as simple as that! With completely integrated payment solutions for platforms – optimize your CoD operations and get in touch with our experts!

The financial operating system that works with cash

Cash should be an asset, not a liability. Loop is the first financial operating system that natively works with cash, in realtime with no compromises.

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