Cash on Delivery: Customer Convenience or a Seller-Funded Business Model?

India’s mega sales report record orders. What they don’t report is how many of those orders came back — and who paid for the round trip.

Opinion | MathuraNow Editorial

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In a country where people think twice before lending even a relative a few hundred rupees, India’s biggest online marketplaces let anyone order goods worth thousands — sometimes lakhs — with no advance payment, no commitment and no obligation to accept the parcel at the door.

That is Cash on Delivery (COD). It is sold as customer convenience. For lakhs of sellers, it has quietly become something else: a business model in which the platform takes credit for the order, and the seller takes the loss when the order fails.

The numbers are not small. According to ET Prime Research, about 60–65% of e-commerce orders in India are paid by COD, and 25–30% of COD orders fail and return to the seller (RTO). For prepaid orders, the failure rate is only 2–3%.

In plain words: roughly one in every four COD parcels makes a full round trip, and in most cases the seller pays for both journeys.

Mathura and Braj also have many traders and small manufacturers who now sell online. For them, every failed COD order is a direct hit on working capital.

The festival that sellers pay for

Every year the “Mega Sale”, “Festival Sale” and “Big Sale” season arrives with heavy discounts, free COD, bank offers, no-cost EMI and easy cancellation. Traffic rises, orders rise, and platforms announce record numbers.

But a booked order is not a sale. Some customers order on impulse. Some order the same product on three apps and keep the first that arrives. Some give a wrong address or phone number. Some simply change their mind when the delivery boy rings the bell.

For the customer, refusing a parcel takes five seconds. For the seller, it is days of work and real money gone.

What one failed COD order really costs

Take a product worth ₹20,000. The seller has bought it, often with borrowed money on interest, paid GST, rent, packing and staff. A COD order comes in.

The seller packs and dispatches it. Forward shipping is charged. The parcel reaches the door. The customer refuses. The parcel starts its return journey, and reverse shipping is often charged too.

What does the seller get?

• No sale and no revenue.
• Forward and reverse shipping charges.
• Packing, handling and re-inspection costs.
• Stock blocked for days or weeks.
• Risk of damage on the way back.
• Interest running on the money stuck in that stock.

The sale never happened. The bill still did.

Fee rules differ between platforms, and not every marketplace charges commission on a returned order. But logistics and other deductions alone can turn a “record sale” into a monthly loss.

Who is responsible

This is not a story with only one villain.

The seller is the one who pays. Small and medium sellers invest real capital in every order and carry almost all of the downside.

Marketplace policies decide who pays. Platforms design the COD offer, run the promotions, hold the customer data and set the rules on who pays for an RTO. They earn through commissions, shipping and fulfilment fees, advertising and seller services. When a customer-caused failure is billed to the seller, the platform’s risk has been shifted onto the smallest party in the transaction.

Some customers misuse the system. Most COD buyers are genuine, and COD matters in small towns, villages and for first-time online shoppers who don’t trust digital payments. But a facility with zero accountability will be misused by a few, and today the honest seller pays for that minority.

Marketplaces already know which customers repeatedly refuse COD parcels. The data exists. The question is why it is not used to protect the seller.

The damage that doesn’t show on the invoice

The loss doesn’t always end with shipping charges. A refused parcel, a customer-caused return, or an unfair one-star review — “poor quality”, “bad seller”, “don’t buy” — can hurt a seller’s ratings. Depending on each platform’s rules, that can reduce listing visibility and future sales.

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Not every complaint proves seller negligence. Not every return means a defective product. Sellers need a fair, transparent way to show when a failure was not their fault.

When the dashboard grows and the bank balance shrinks

For a large platform, a million orders are a metric. For a small seller, each order is money already spent on stock, tax, salary and rent — often borrowed.

The seller expects the festival season to bring profit. Instead, parcels keep coming back, deductions keep appearing, and at month-end the accounts show a loss.

The marketplace dashboard shows rising orders. The seller’s bank balance shows the truth.

Not against COD — against one-sided COD

COD should not be abolished. It serves millions of genuine customers. But customer convenience cannot mean transferring the entire risk to the seller. Reasonable safeguards already used in parts of the industry could change this:

1. OTP confirmation for COD orders.
2. Limits on COD for customers who repeatedly refuse deliveries.
3. A small advance payment for high-value COD orders.
4. Fair sharing of RTO costs when the customer is clearly at fault.
5. Separate RTO rules for seller-caused and customer-caused failures.
6. A proper review check before unfair ratings hurt a seller’s ranking.
7. A clear, auditable breakdown of every deduction from a seller’s account.
8. The seller’s right to switch COD off by product value and risk.

None of these is unreasonable. They are the basics of a fair marketplace.

The questions platforms should answer

Customer rights, refunds and returns are discussed often. Seller protection rarely is. Platforms could publish, at least in aggregate:

• How many COD orders were delivered, and how many returned?
• How many returns were caused by customers refusing delivery?
• How much did sellers lose to customer-caused RTO?
• How many sellers were penalised for failures that were not their fault?

The marketplace gets the festival, the customer gets the offer, the logistics company gets its fee — and the seller gets the bill.

If one click can create an order and one refusal can wipe out the seller’s margin, the platform that takes credit for the sale must also share responsibility when it fails. The success of a marketplace should not be measured by orders booked, but by how fairly everyone in the transaction is treated.

What do you think?

Should sellers pay forward and reverse shipping when a customer refuses a COD parcel? Should marketplaces share the cost of customer-caused RTO? Is it time for clear national rules on COD and seller protection?

If you sell online from Mathura, Braj or anywhere in India, share your experience with us on WhatsApp or in the comments. Your voice matters.

Data: ET Prime Research, as reported by Dazeinfo (June 2024).

Editorial Note: This is an opinion piece on the economics of COD, RTO and seller protection in Indian e-commerce. Fee structures and return policies differ between marketplaces; this article does not allege that every marketplace follows identical policies.

Disclosure: MathuraNow is owned by PATOYS, a proprietorship that also sells products online.