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What is 'Cash On Delivery - COD'

Cash on delivery (COD) is a type of transaction in which the recipient makes payment for a good at the time of delivery. If the purchaser does not make payment when the good is delivered, then the good is returned to the seller. The recipient can make payment by cash, certified check or money order, depending on what is the shipping contract stipulates.

BREAKING DOWN 'Cash On Delivery - COD'

This type of transaction usually takes place through a shipping company and allows both the seller and the buyer of the product to minimize the risk of fraud or default. COD allows the purchaser to pay at the time of delivery instead of having to pay upfront. The purchaser remits payment to the shipping company, which then relays the payment back to the seller.

Advantages and Disadvantages of COD Transactions

For consumers without credit cards, COD purchases offer a convenient way to order goods online or through mail order businesses. The transactions pose low risk for the buyer since he doesn't pay until he receives the product in satisfactory condition. COD transactions also protect the buyer against scams by online fraud artists who often pose as legitimate businesses to collect credit card information for illegal uses. In COD purchases, the buyer knows that the merchandise must actually show up before he needs to pay out any money; however, COD payment options may lead some consumers to make unwise purchases due to the ease of online ordering and the ability to defer payment until delivery.

On the merchant's side, offering a COD payment option may enhance buyer confidence in a new company that does not yet have strong name recognition. This can lead to more customers and increased sales. As another plus, since COD transactions do not involve a credit card, merchants save money on credit card transaction fees. Merchants can pass these savings along to the consumer in the form of lower prices.

In addition to enjoying the benefits of COD transactions, merchants who offer this payment option must be prepared to assume certain risks. Since the consumer may refuse delivery when the goods arrive, the seller may wind up carrying the costs of shipping for returned items. Delays in shipping or difficulties coordinating delivery times with buyers can also lead to frustrating waits for payment.

In some countries, including India and Pakistan, cash on delivery transactions are boosting Internet commerce. COD transactions are also popular with many younger consumers who do not yet have a credit card and consumers with poor credit who have no other means of paying for online goods.

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