Offering Cash On Delivery as a payment option can help your store reach a wider target audience and drive more sales. However, it can cause several inconveniences to your store if not handled properly.
This article will help you with best practices to ensure you suffer minimum to no losses.
-> Click here to start selling on WhatsApp with BusinessChat
Cash On Delivery is a payment process that solves different problems for you as an e-commerce or retail store owner and your customers. Let's pinpoint why it’s a good option and see how it might affect your business.
Why do people prefer COD?
Lack of trust stems from concerns about the website's or the seller's reliability and the fear of being scammed. This can be true, especially for new and unknown brands. However, cash on Delivery provides a sense of security for customers, as they only pay for the product once it has been delivered.
Online frauds: customers prefer Cash on Delivery as a payment option because they lack trust in online payment systems. Customers are often skeptical of the security measures to protect their sensitive financial information. Likely, many of your customers have had negative experiences with online payment systems, such as fraud and identity theft, eroding their trust in these systems.
No access to electronic payments: for customers who do not have access to credit or debit cards, COD provides a viable payment option. It allows them to make purchases without having to worry about financial transactions. You would notice this if you have customers from specific demographics, especially older people and those from rural areas.
Product quality: COD eliminates the risk of paying for something online and not receiving the product or a defective product.
Benefits of COD for businesses
Wider audience: if you offer COD as a payment option, you will reach a wider audience and expand to areas with limited online payment infrastructure. This includes customers who may not have bank accounts or are uncomfortable sharing their financial information online. Also, some customers prefer paying with cash, even if they have access to online payment methods.
Build customer trust: by offering COD, you can assure first-time customers that they will only pay for the product once it has been delivered, increasing their confidence in the purchase. This can be true, especially with expensive items, as customers might hesitate to purchase online from a new brand.
The bottom line, offering COD will help you satisfy your customers and drive more sales by tapping into wider audiences. However, if not done correctly, you might witness several drawbacks. So let’s see what might go wrong so we can help you implement an effective system.
Downsides of COD
Although COD can be a good option for your store, it can inflict tremendous harm if mishandled.
Frequent returns: COD allows customers to see the product before they pay for it, which can lead to customers changing their minds and returning the product. Returns can increase significantly if you don’t offer exhaustive product descriptions and explanatory images or videos.
Cash management issues: Unlike online payments, COD payments must be stored and accounted for, creating additional cash management challenges. This includes securing cash storage facilities, regular cash audits, and accurate accounting processes.
Restricted cash flow: COD payments are collected at the time of delivery, which can lead to delayed cash inflows for companies. This can create cash flow gaps, making it difficult for companies to manage expenses and invest in growth opportunities.
Partner issues: if you don’t have your shipping system and partner with different shipping services to deliver your products, you will likely face problems with those partners. For example, you might not agree on time management, affecting your customer relationship. In addition, other issues might arise along the way.
Problems will always arise from different fronts, and you can deal with them promptly and on time. However, to be safe, you must ensure you have a well-designed setup and policy for the use of COD. Consider the following strategies.
Best practices to minimize loss
Now that you know the primary drawbacks of Cash on Delivery, you know what issues to address. The following tactics will help you approach this the right way.
Verification of customer contact information
It’s highly recommended that you verify your customers' contact information before delivering the product. The verification process will ensure the customer is accurate and authenticate the address. This can solve two problems; eliminate frauds, as some people might place an order just as a prank or by mistake, and ensure you have the correct address to avoid changing routes and resulting expenses.
Notify customers about their order delivery
You might see some items being returned simply because the customer wasn’t at the meeting point at the delivery time. To avoid conducting multiple trips to deliver one order and hence eliminate ensuing expenses, you must keep your customers updated about their order status.
You can rely on the convenient automation solution for your store and integrate a series of order status messages. We recommend that you notify the customer as soon as they place the order so they can confirm, a second message to notify them when the item is out for shipping, and a third message for when it arrives. Keeping them in the loop and setting expectations for when the order will arrive will allow customers to remember the time and have their cash on.
Examine customers history
As we’ve seen, not all orders can be authentic. Some people would like to play pranks, others by mistake, etc. To avoid falling for the same trap repeatedly, you must examine your customers' history before sending out any order.
Check if that customer has a history of canceled orders, returns, etc. This information will help you understand whether they are serious about the order.
Set a purchase limit on order value
Customers can only choose COD as a payment option if their order value falls within a specific range, beyond which they must use a different payment method.
Setting a purchase limit can help reduce the number of fraudulent or non-serious buyers who may place orders and then refuse to accept delivery, resulting in wasted inventory and lost revenue for you. It can also encourage customers to opt for other payment methods that are more reliable and secure.
However, balancing your products' purchase limit and average order value is crucial. If the purchase limit is set too low, it may deter customers from making larger purchases. While if it’s set too high, it may still attract non-serious buyers.
Keep your promises: turnaround time
One of the top reasons customers would return an order is the lack of time commitment from your or your shipping partner’s end. They will likely lose interest if they have to wait too long for their order to arrive and don’t get it on time.
You must work to choose the best routes and ensure you have the logistics necessary to deliver multiple orders. This can help reduce turnaround time. Ensure you deliver as per the time you set in your order notifications.
Restrict COD in particular locations
If you study your data well, you can determine where you receive the most returns. If you notice a large number of returns from one particular place, for example, you can deactivate that area's COD option using locations' pin codes.
Enable card payments for COD orders
To deal with the problem of lack of cash, especially at last-minute delivery notice, you can provide card payment options for COD orders. People might be skeptical about paying online to a company they barely know, but they will be more open to sweeping their cards once they receive their order and rest assured they haven’t been scammed.
To eliminate all conveniences caused by COD, you can work on promoting online payment options with discounts, for instance, etc. Otherwise, the above solutions will be helpful if you still have customers who prefer to pay cash. After all, you don't want to retain a significant audience.
How to implement a notification system to handle COD?
The first step to eliminate misunderstanding and ensuing problems due to COD requests is implementing a notification series to ensure the order is legit.
You have two options to verify orders: manually or through an automated process.
Traditionally, you would call customers by phone to verify whether an order is real and if they are serious about it. Calling the phone number submitted by a customer during the ordering process will suffice to prove whether the customer is indeed the owner of that number and hence confirm their order intentions.
Once they confirm, you can proceed to prepare the order for delivery.
However, this method will be exhausting with a large customer database. You will need an automation solution to scale.
Automation allows you to send order confirmation messages to people who opt for Cash On Delivery. You can use email to set up notifications triggered each time a customer places an order and chooses COD.
Yet, the 25% open rate of emails will cause a great loss. For your notifications to work, we recommend sending your notifications through WhatsApp to make sure that at least 80% of your potential customers read your order confirmation notification.
Using WhatsApp API can help you reach your customers quicker, avoid getting neglected, and suffer losses when customers do not open your confirmation notifications.
Since WhatsApp API is not a platform but rather codes of programming language, companies like BusinessChat offer a user-friendly marketing automation solution built on WhatsApp API you can use to implement all of your automated notifications.