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This classic and convenient payment option is making a comeback among shipping managers. Should you follow their lead?

Tired of chasing payments from customers? Maybe C.O.D. is just what your business needs.

Companies that ship goods to customers have several things to consider, from what carrier and transportation mode to use to the best packaging for the item being shipped. Even more important: Companies need to weigh the best method for receiving payments.

Traditionally, open account and credit card sales have been popular options for payments. Unfortunately, with an increased number of customers unable to make payments, and increased debt write-offs, the recent recession has caused many shippers to think twice about offering only these choices.

And while consumers still depend on plastic as a payment option, a 2011 report by Index Credit Cards, which tracks changes in the credit card industry, notes two trends that are dampening the volume of credit card usage: a broad movement toward debt reduction, and greater use of alternative payment methods. According to a recent study by Hoffman, Brinker & Roberts, a debt-settlement company, more than one-third of consumers surveyed reported having paid off and closed a credit card since January 2008; nearly half said they have reduced their use of credit cards for purchases.

Re-enter C.O.D.
As more and more companies rethink their reliance on credit card payments, collect on delivery (C.O.D.) service has made a comeback.

Like the white dress shirt or the little black dress, C.O.D. is a classic that can be just as useful today as it was when first introduced. Before the package delivery company’s driver completes the delivery of a shipment, the recipient hands a check or money order to the driver. 

How does C.O.D. stack up against open account, credit card and PayPalTM transactions? Here's a close look:

While processing times for C.O.D. payments may be longer, in some cases, than those of credit card and PayPal transactions, they are far shorter than the time it takes to receive payments from most traditional invoices sent to companies you sell to.

It's worth noting that UPS and its financial services arm, UPS Capital®, are doing innovative things to speed up the processing of C.O.D. payments even more.

While C.O.D. shipments normally carry a service fee per shipment, C.O.D. fees, when compared to the service fees incurred via credit card or PayPal transactions, actually may be less – saving you money. This is why businesses are taking a serious second look at C.O.D. as a viable form of accelerating cash flow without incurring the processing fees associated with electronic or credit card payments. 

Of course, C.O.D. is not a one-size-fits-all solution. Invoices can be useful for shipments to routine customers who purchase large volumes of goods and have good payment histories. But for companies that need payments quickly to maintain working capital and that want to avoid the service charge of a credit, C.O.D. is an option to consider adding to your mix.

See product disclaimer at the foot of this page.

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Reader Comments

Add Your Comment

KrantiSharmaUPS June 3, 2011
Thanks to all for the great feedback below. As you’ve all noted, C.O.D. services have advantages and drawbacks. Given the economic challenges of the past few years, however, many businesses have chosen to come back to using C.O.D. as a payment option. Credit card payments are not always possible for customers that may be reducing credit card usage or potentially have maxed out their credit limits. In addition, suppliers face expensive interchange (credit card merchant) fees, especially with higher value goods. C.O.D. services can offer relative security without those fees. Standard C.O.D. costs typically are a flat fee per package, regardless of the value of goods. Enhanced C.O.D. services are also available, for an additional cost, and can help businesses get paid faster through electronic deposit. These services can even protect against bad checks. At UPS and UPS Capital, we recognize the changing payment needs of our customers and will continue to innovate so that our customers can get paid faster and more securely. Whether or not C.O.D. is right for you, we thank you for your business, which we greatly value. Best regards, Kranti Sharma, UPS Capital.
The Compass Guy May 12, 2011
Jerry at UPS Compass here. Some good observations and points worth addressing. I'm going to ask the UPS COD expert to respond by posting here. What's YOUR take on COD service? Select "Add Comment" below to respond. Best - Jerry
DockSweeper May 11, 2011
COD has its drawbacks but how else are you going to get the money for your merchandise from the many Americans who no longer have credit cards or whose cards are maxed out? As long as the driver doesn't forget to pick up the check, it works well for me. Kind of a necessary evil.
Reply May 11, 2011
We do not use C.O.D. for new customers any more because of receiving bad checks and for package refusals. Only our established customers. The article mentioned that it is a charge per shipment. My experience is that I have to charge the fee per box. I had a shipment of 2 packages we sent C.O.D., the customer refused the main package that reflected the C.O.D. but the driver left the 2nd package! When I called about this situation, I was told to avoid that I had to create a C.O.D. per box, not per shipment. Has this policy changed? I have been doing per box every since this happened to us 3 years ago. I have actually lost business because the per box charge can really add up when I have to send a shipment of 3 or more packages.
Security Supply May 6, 2011
The UPS drivers clip boards are already very intelligent and connected to the internet. I would pay for the service of having your driver charge my customer's credit card when the package is delivered. UPS could electronically transfer this money to my checking account.
mrpenguin May 5, 2011
We all understand how C.O.D. works and understand the advantages. Thank you for that. Here are the disadvantages and reasons we no longer use it: 1. Drivers can no longer accept cash. I have a large percentage of customers who would gladly accept COD's if they could give the driver cash. 2. It has been our experience that the customer "forgot to get a money order" (for certified funds only delivery) and the package eventually comes back to us and we are on the hook for the freight charges. The customer at that point will not order again because he is either embarassed or knows he owes us for freight and COD charges. 3. The guy's wife refuses the package or an employee refuses it because they know nothing about it or dont have the money...etc etc 4. Bad checks with no way to recover the money. It can take several weeks to find out you got burned. I have had customers write bad checks intentionally and then apologize and promise to send another check out "today". For now we will wince in pain and pay the credit card fees.