C.O.D. — A classic and still very viable payment option

Companies shipping goods to customers have several things to consider, from what carrier and transportation mode to utilize to the best method for receiving payments

Open account and credit card sales are simple, popular options for payments to suppliers. However, there are still cases where customers are unable to make payments, which increases debt write-offs and causes shippers to think twice about selling to certain customers on open account terms or accepting credit card payments.

A report by Index Credit Cards states that: “While credit cards remain a popular payment option for consumers, two consumer trends are working to dampen credit card volume: a broad movement toward debt reduction and greater use of alternative payment methods.” In fact, according to a study by Hoffman, Brinker & Roberts, 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.1

If you’re hesitant to rely on credit card payments, the tried-and-true option of using Collect on Delivery (C.O.D.) services to collect payments still remains viable.  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 in Switzerland in 1849, requiring cash payment upon delivery of goods. When a package driver completes the delivery of a shipment, the recipient hands a check or other negotiable instrument to the driver. The check is made payable to the supplier for the appropriate charges negotiated between the buyer and supplier.

Certain carriers understand the importance of cash flow to small businesses and have provided a variety of enhanced services for C.O.D. shipments. These services can expedite, advance and secure funds, as well as offer shippers the ability to select the number of days before C.O.D. remittances are automatically deposited into their bank accounts. Bottom line: checks that once took up to two weeks to receive via mail can be deposited into a shipper’s bank account in as little as two business days after package delivery. This acceleration of funds can also help businesses more quickly assess the risk of buyers with insufficient funds.

How does C.O.D. stack up against open account, credit card and PayPal® transactions? Here’s a closer look:


Processing times can vary by the type of C.O.D. service you choose. A standard C.O.D. payment can take up to 16 days after the delivery of the package for the check to clear the banks, and to make the funds available to the seller of the goods. However, there are also enhanced C.O.D. options that are designed to accelerate the flow of the funds. Depending on the level of C.O.D. service you have chosen, funds can be available to the seller in as little as two business days after the delivery of the package. Other enhancements include protection against checks that “bounce” and are returned because of insufficient funds.

While processing times for C.O.D. payments are longer than those of credit card and PayPal transactions, they are far shorter than the time it takes to receive payments from most traditional invoices. It’s worth noting that UPS and its financial services subsidiary, UPS Capital, are doing some innovative things to speed up the processing of C.O.D. payments.


C.O.D. shipments normally carry a service fee per shipment, which can vary depending upon the selected service level (Ex. Providing extra protection against non-sufficient fund (NSF) checks). But, it is also possible that C.O.D. service charges may be less than those of credit card or PayPal transactions. This is why some businesses still take 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.

To be clear, C.O.D. is not a one-size-fits-all solution. The quicker turnaround of a credit card payment is sometimes necessary, and invoices can be useful for shipments to routine customers who purchase large volumes of goods and have good payment histories. However, for companies that need payments quickly to maintain working capital or can’t afford to sacrifice revenue for the service charge of a credit charge or PayPal transaction, C.O.D. is something to consider.

In the end, do your research. A mix of options that fit your unique operation is usually the best solution, rather than relying on any single option.

For more information about UPS Capital, visit uat.upscapital.com or call 877.263.8772.

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