Cash on Delivery: What it is and how it works

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Cash on delivery is one of the popular methods of remote purchase, in which the buyer pays for the order after receiving it. Also this payment mechanism is called cash on delivery. A convenient option for those who want to check the goods before giving money for it. 

Principle of cash on delivery

In simple words, cash on delivery is when the buyer first receives the thing or product and only then pays for it. 

Such a procedure provides maximum transparency of the purchase for the buyer. This is primarily important for those who do not trust prepayment, especially when buying from an unfamiliar seller for the first time.

How the cash-on-delivery process works: from registration to receipt

Sending cash on delivery includes several steps:

1. Order placement. The buyer selects the goods and notes the method of payment - cash on delivery.
2. Sending the goods. The seller sends the order through the postal service.
3. Receiving the parcel and payment. The buyer receives the goods and pays for them at the post office.

This is the normal procedure offered by most postal carriers.

Key stages of cash on delivery processing

The peculiarity of cash on delivery is that an important link in the process is the postal operator, which guarantees the settlement of the buyer with the seller. Accordingly, the processing of cash on delivery can be divided into the following stages:

1. The seller has prepared the goods for dispatch according to the rules of the postal service.
2. The order is packed and handed over to the postal operator.
3. At the carrier's office, the buyer checks the goods and, if satisfied, pays the cost.
4. The postal service transfers the money for the goods to the seller's account.
5. If there are any complaints about the goods, the buyer refuses payment, and the postal operator's employee must properly process the return of the parcel.

It is important to understand that any postal service becomes a participant in the settlement process and assumes financial responsibility. Therefore, it charges a commission for providing the cash on delivery service and making the transfer - we tell you about it below.

How to receive funds in the case of cash on delivery

As we have already noted, the seller receives funds after the buyer pays for the goods at the postal service branch. Cash on delivery on prepayment - this is also a possible option, that is, part of the amount is paid in advance, and the rest - after receiving the goods. This helps to reduce the financial risks of both parties.

Advantages and disadvantages of cash on delivery

Let's take a closer look at the pros and cons of cash on delivery.

For the buyer

If we define what cash on delivery is for the buyer, then this is a mechanism that guarantees additional security when buying.

The advantages of this method of calculation:

• The opportunity to check the purchase before payment.
• Cash on delivery potentially reduces the risk of receiving low-quality goods.
• Payment upon receipt of the purchased item reduces the likelihood of becoming a victim of fraudsters.

But there are disadvantages here too:

• There is no possibility to order courier delivery of the parcel.
• The need to pay for the service of cash on delivery to the postal service, which may not always be favourable.

However, if you are not sure of the integrity of the seller or shop, paying for the goods on cash on delivery is an ideal option.

For the seller

Here among the advantages of cash on delivery should be highlighted:

• Increased buyer confidence.
• Expanding the customer base by attracting those who avoid prepayment.
• Ensuring a fair deal by paying after the buyer receives the goods, which is guaranteed by the postal service.

For the seller, the disadvantages are also present:

• Delayed receipt of funds.
• Cash on delivery is the risk of returning the goods without payment.
• The possibility of additional postal service charges when parcels are returned.

Some sellers who make kraft goods with individual elements (inscriptions, initials, photos, etc.) - work only on full prepayment. 

Possible risks of cash on delivery

What does cash on delivery mean for the seller? It is an additional risk that the goods may be returned by the buyer. For the buyer, on the other hand, the risk is the possibility of losing time waiting for an item that is of inadequate quality or one that does not fulfill a need.

It is important for both parties to consider all the disadvantages of cash on delivery to avoid unpleasant situations.

Correct handling of cash on delivery

To avoid problems, the seller should carefully fill in all the necessary fields when making the cash on delivery, indicating the exact details of the buyer and the amount. It is important to take into account the rules of the postal operator and the requirements of the fiscal service for issuing fiscal or electronic cheques.

Cost of cash on delivery services

When paying cash on delivery, the buyer pays the postal service the cost of carriage (depending on the size of the parcel and delivery conditions) and the cost of the funds transfer service. Usually the latter consists of a percentage of the transfer amount and the actual commission for the transaction (differs from service to service). 

Ukrainian services offering cash on delivery services

In Ukraine there are several companies that are engaged in postal transportations. Each has its own terms and conditions. Let's tell a little more about popular services.

‘Novaia Pochta’

The company ‘Novaia Pochta’ is one of the most famous logistics companies in Ukraine, as it provides high-quality transport services. It also provides fast delivery, which is a significant advantage for many buyers and sellers.

‘Novaia Pochta’ works throughout the territory of Ukraine and abroad. 

So how is it - cash on delivery on the terms of ‘Novaya Posta’? When goods are sent with cash on delivery, in addition to the cost of delivery, the company takes for the service of transferring funds a percentage of the amount + a fixed commission for the transaction. 

‘Ukrposhta’

This is the main national postal operator in Ukraine. Ukrposhta also offers cash on delivery with the possibility of delivery even to remote regions. This is convenient for buyers who are located in rural areas. The postal service provides reliability and availability of services, which is an important factor for many customers.

Through Ukrposhta you can send goods across Ukraine and to other countries. The cost of cash on delivery service also consists of a percentage of the amount (varies depending on the method of receiving cash on delivery - cash or card) and a fixed transaction fee. 

Other services

Among other logistics services that are popular in Ukraine, we can highlight ‘Meest’ and ‘Justin’. They are also considered reliable. These services work on the same terms as the others: the commission for the transfer itself + a percentage of the transferred amount. 

Cash on delivery for physical persons-entrepreneurs (PEP)

A separate question about cash on delivery - how does it work for FLP? This is a fairly common and convenient way to receive funds without the risk of fraud on the part of buyers. 

Cash on delivery allows entrepreneurs to work effectively in the market, ensuring control of their own financial operations and compliance with the requirements of the fiscal service (issuance of cheques to the buyer).

The settlement method can also be favourable from a tax accounting point of view, as it avoids tax liabilities until funds are actually received. It also simplifies accounting by reducing the risk of tax calculation errors.

Alternative methods to cash on delivery

An alternative to cash on delivery can be prepayment via bank cards or electronic payment systems, which allows for faster receipt of funds from the buyer. However, prepayment is not always suitable for people who are not willing to trust their money by default. If you are not sure about the seller or a particular product, it is better to understand what cash on delivery is and use it.

How cash on delivery is integrated with the ERO

Registration of cash on delivery in the Register of Settlement Transactions ensures control over any financial transactions of an entrepreneur and their compliance with tax requirements, which is important for business. It also helps to avoid problems with the fiscal service, because correct reflection of all payments in accounting and tax accounting reduces the number of errors or irregularities.

Summary and conclusions

So, we have learnt what cash on delivery means and how to work with it. This is a convenient tool for both buyers and sellers. Cash on delivery minimises the risks of both parties and ensures the transparency of the purchase and sale. 

Despite the known disadvantages, this method remains popular in Ukraine, especially among those who value the security of their financial transactions.