Cash on delivery definition
/What is Cash on Delivery?
Cash on delivery is payment terms that require the recipient of a delivery to make full payment with cash or a certified check at the time when goods are delivered to the recipient. The shipping company collects the payment and remits it to the seller. If the recipient cannot pay, then the shipping company returns the goods to the seller. Cash on delivery terms keep the seller from incurring any credit risk, and are especially valuable when there have been prior payment problems with the same buyer. However, there are transactional costs associated with cash on delivery. Further, buyers may reject these deliveries because of the required payment. And finally, creditworthy customers will rarely accept such terms, and will instead look for other sellers who offer more generous payment terms.
Advantages of Cash on Delivery
Cash on delivery terms have some advantages for the buyer, which are as follows:
Avoids cash in advance. The buyer does not have to make a cash in advance payment, which might severely impede its cash flows.
Avoids credit card use. The buyer does not have to give the seller any credit card information, which may be an issue when the buyer does not have access to a credit card.
Forces up-front inspection. The buyer can inspect the goods before handing over payment; this can be a major plus when the goods being received have had quality problems in the past.
Nonetheless, cash on delivery terms tend to favor the seller more than the buyer.