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COD vs prepaid: what cash on delivery really costs an online seller
By the Veritally team · Updated · 4 min read
Quick answer
Cash on delivery costs more than its COD fee. Add the freight both ways on every COD parcel that is refused or not delivered (RTO), the packing you lose, and the days your cash waits to be remitted. Work it out from your own rates, then nudge buyers to prepaid where you can.
Key points
- Three costs: COD handling fees, RTO on refused parcels, and cash that arrives later.
- RTO is usually the biggest: freight out, freight back, packing, and no sale.
- Example: 3,000 orders a month, 60% COD, 20% of COD returned, ₹70 each way plus ₹15 packing is about ₹55,800 a month (example figures).
- Common fixes: confirm COD orders before shipping, a small prepaid incentive, and avoiding repeat refusers.
The three costs of COD
| Cost | What it is | Where to find your number |
|---|---|---|
| COD fee | What the courier or aggregator charges to collect cash | Your rate card |
| RTO | Freight both ways plus packing on parcels that come back | Courier invoice, returns report |
| Slower cash | Days between delivery and remittance | Remittance report |
Work it out
RTO cost a month = orders × COD share × RTO rate × (forward freight + return freight + packing).
Example: 3,000 × 60% × 20% = 360 returned parcels × (₹70 + ₹70 + ₹15) = ₹55,800 a month. These are example figures; the RTO cost calculator uses yours.
Ways sellers shift buyers to prepaid
- Confirm COD orders on WhatsApp or a call before dispatch.
- Offer a small discount or free shipping on prepaid.
- Watch pin codes and buyers with repeated refusals.
- Keep delivery times short; refusals rise when parcels take longer.
Check COD is charged right
Two common billing errors: return freight on a parcel that was delivered, and COD fees on prepaid orders. Shopify brands can run the free leak scan to check every parcel; marketplace sellers can use the free payout check.
Frequently asked questions
Is COD more expensive than prepaid for sellers?
Usually, once you count RTO freight both ways, packing on returned parcels and the wait for remittance, not just the COD fee.
How do I calculate my RTO cost?
Multiply your returned COD parcels by forward freight, return freight and packing per parcel. The free RTO cost calculator does it from your numbers.
How can I reduce COD returns?
Confirm COD orders before shipping, reward prepaid, avoid repeat refusers and keep delivery fast.