Cash on Delivery (COD)

Cash on delivery (COD), also called collect on delivery, is a payment method in which the buyer pays for goods at the time of delivery rather than in advance. The seller ships the product with an invoice attached, and the buyer pays the delivery driver or logistics partner when the goods arrive. COD is widely used in South Asia, Southeast Asia, and parts of Africa, where large portions of the population lack credit cards or bank accounts. It remains common in India, Bangladesh, and the Philippines for e-commerce orders. The term originally meant payment in cash, but many providers now accept card payments, digital wallets, and mobile payments at delivery.

Think of COD like a taxi ride where you hand over payment when the driver pulls up to your destination rather than booking and paying on an app in advance.

COD Reduces Buyer Risk but Increases Seller Risk

From the buyer's perspective, COD is appealing because you can inspect the goods before paying and you never risk losing money to a seller who ships nothing. This build of trust is one reason COD remains dominant in markets where consumers have limited confidence in unfamiliar online sellers. In India, for example, COD is estimated to represent more than 50% of e-commerce transactions in some categories.

From the seller's perspective, COD creates several problems. The most serious is delivery refusal: if a buyer changes their mind or simply is not home, the seller bears the return shipping cost and loses any perishable goods. Collection costs are also higher because the logistics partner deducts handling fees before remitting payment, reducing net revenue. Cash payments also create security risks for delivery personnel.

COD Can Affect Revenue Recognition Under Accrual Accounting

Under U.S. GAAP, which requires the accrual method for most public companies, revenue is recognized when the performance obligation is satisfied, not when cash is collected. For COD transactions, this typically means revenue is recognized at delivery, not at order placement. Under cash basis accounting, which some small businesses use for tax purposes, revenue from a COD sale would also be recognized at delivery, because that is when the cash is actually received.

B2B COD Has Different Characteristics than Consumer COD

In business-to-business trade, COD is a more formal credit arrangement and typically involves structured payment on delivery through check or bank transfer rather than cash. B2B COD is used when a seller does not extend trade credit to a new buyer or when a buyer has a history of late payment and the seller wants to reduce receivables risk. Unlike consumer COD, B2B COD usually integrates into the accounts payable and accounts receivable systems of both parties.

Sources:
https://altline.sobanco.com/what-is-cod/
https://www.uschamber.com/co/start/strategy/what-is-cash-on-delivery
https://www.billtrust.com/resources/blog/what-is-cash-on-delivery
https://www.transvirtual.com/blog/your-guide-to-cash-on-delivery-cod-explained-2/