Why All Online Businesses Need to Bank on Cash on Delivery As a Business Model

Trading online is risky. There are a lot of frauds out there and every time you decide to buy something online you could be falling into one of their traps. We've all heard of the countless people that have already fallen prey to such cons on Olx. And this is why many online businesses like Jumia use Cash on delivery in order to give their user a sort of security when they commit to buying something.

Cash on delivery is the method of payment that allows customers to purchase products on a company’s website or make orders via phone and pay for them upon delivery on their doorstep or office, this form of business is as old as 1635 in England but in Kenya, it has only began taking shape and could possibly be the recipe of Kenyan businesses.
According to JUMIA, Cash on delivery accounts for over 55% of its transactions in Nairobi and Mombasa, the two cities the company offers the mode of payment. Parinaz Firozi, MD Jumia Kenya says Cash on delivery has helped the company acquire new customers.
“Over 60% of our customer acquisition has been through cash on delivery. There is zero risk for the customer since they only pay for the product if they like it, there are no cost implications if they reject the product, the delivery man just takes it back. Its stress free,” Firozi adds.
In a country where credit card penetration remains a major headache for financial institutions and the government with several flopped initiatives, Mobile money transfer remains the alternative. “Customers will load their mobile money account and wait until the delivery is made and they are happy with it before transferring the cash on the spot.”
Hellofood an online platform that allows you to order food online and have deliveries made to your doorstep in Kenya also offers cash on delivery .Cathy Mwangi, marketing manager notes it’s easy to use and more credible, “Credit cards can fail especially when customers don’t check their balances regularly leading to cancelled orders. “
Ampire Power solutions, a Powerbanks company with a physical store along Kimathi Street also offers COD. Bob Wanyiri, Group chair says the payment method forms 50% of the business activities in a day.
“We have our store here, a Facebook page and mobile number that our customers use to make orders, mostly in Nairobi. People want you to take the product to them, they want to feel you have earned every dime at their convenience. We make deliveries all day and the conversion is high. It’s good.”
While cash on delivery makes perfect sense for the customer, a lot of logistics and costs are involved especially when delivering expensive products that require insurance and security, a rejection of this nature would mean a two-way massive loss to the seller shipping the product back to the warehouse and back again to the customer and a lot of time wastage. Cases of customers changing their mind are also high since they haven’t paid for the delivery and could easily get another source and that’s not just it consolidating receipts and keeping records is crazy.
Firozi advises that using own riders and delivery vans and making several deliveries along one route is cost effective and time saving and agrees that COD is a real recipe for Kenyan business but should be used with a lot of caution and foresight.
It’s your call now.