While cash on delivery (COD) is a system intended to typically reduce risk and fraud, as with any type of financial transaction identity theft and credit card fraud can occur once payment takes place.

In a COD transaction payment for a good is made at the time of delivery rather than in advance. If the buyer fails to make payment on delivery the good is usually returned to the seller. Acceptable forms of payment usually include cash, certified check or money order but payment ultimately depends on what is agreed to in the shipping contract. Payment is generally made to the shipping company, which then forwards the payment to the seller. For example, if a builder is to pay COD for an order of 1,000 tons of steel, the builder would present payment to the trucking company once it delivers the steel. The trucking company would then pass the payment for the steel on to the seller.

Fraud or theft can occur at this stage of the COD process when payment is made. One form of possible theft is card-not-present fraud, which occurs when thieves steal credit card information needed to make purchases even without physical access to the card. An employee responsible for taking the payment on delivery can obtain a cardholder’s name, billing address, account number, three-digit security code and card expiration date, which can later be used to fraudulently charge to the account. When card-not-present fraud occurs the merchant typically bears the loss. Most credit cards however do provide reimbursement for fraudulent charges.

If cash is used for COD it is easier for those handling payments to steal the money. Many businesses use lockbox banking techniques in an attempt to prevent theft. Lockbox banking is a technique where customer payments may go to a special post office box rather than directly to the business. This may also be true for checks used to pay for COD transactions. Once in the lockbox the bank will retrieve the payments and can deposit the funds directly into the appropriate bank account.

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  1. Cash On Delivery - COD

    A type of transaction in which payment for a good is made at ...
  2. Identity Theft

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  4. Delivery Versus Payment - DVP

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  5. Late Fee

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