What Is Collect on Delivery?

Collect on delivery, or COD, is a type of financial arrangement in which payment is given when a particular product or service is received rather than before. A simple example of this type of financial transaction can be seen in pizza delivery. The consumer orders a pizza and, when the pizza is delivered, the consumer pays the delivery person. A collect on delivery financial transaction gives the consumer the opportunity to inspect the product prior to payment in order to ensure that he has actually received what he ordered. Many companies do not offer this type of service because of the risk of pranks or false directions and because of the unnecessary complication of getting payment from the delivery service if a third-party deliverer is used.

The ability to easily pay remotely with credit or debit cards and the rise of Internet shopping have significantly reduced the prevalence of collect on delivery transactions. Advance payment through such methods often means that the recipient does not even need to be present to collect the delivery. Also, there is no risk to a seller or delivery company and no motivation for pranks or fraud if payment is made in advance.

Some companies still do find the use of collect on delivery financial transactions to be advantageous in certain circumstances. A company that favors this collection method, for instance, does not need to wait for a customer's payment to clear before going forward with a delivery. Also, collect on delivery transactions are more accessible to those who prefer to pay with cash or check instead of credit cards. Such arrangements work particularly well when a company owns its own means of delivery, as this negates any potential difficulty in getting the payment from the third-party delivery company to the business that offered the delivered product or service.

Though long-distance deliveries that deliver through third-party companies tend not to favor the collect on delivery transaction system, local businesses such as restaurants still commonly offer collect on delivery payment methods. In general, they employ and pay their own delivery people, and the actual costs of transactions made tend not to be particularly high. As such, there is minimal risk, and offering convenient payment and delivery options can substantially increase business. Offering a collect on delivery option means that customers do not need to read credit card numbers over the phone or drive to the business to pick up and pay for ordered products.