DropShipping vs Cash On Delivery

Anyone associated with e-commerce or who has even ordered a single product on the internet is familiar with the terms Drop Shipping and Cash On Delivery. Today we pit these two very different methods against each other and do a DropShipping vs Cash On Delivery battle to see which one is the best. 

Dropshipping includes paying the seller before the product is delivered while Cash on Delivery relies on either cash on delivery or payment made after the delivery has taken place.  

Both methods are contrasting with each other and worry one of the two parties, (either the seller or the buyer) on the delivery of the product. In this article, we will focus on great detail on these two modes of payment.

What Is Cash On Delivery?

It is a payment method, where the consumer pays the courier, individual or seller by cash/card directly only after delivery of the order. This is one of the most common types of internet buying and selling transactions.

Cash on delivery has been a predominant form of payment for shopping in nearly all the nations where online enterprises have flourished. Many of them are Turkey, Bangladesh, Thailand, etc.

So what makes cash on delivery a great form of payment? It is not a perfect system and has its pros and cons, let's discuss that in detail:

Pros of Cash on Delivery (CoD)

Flexible Payment Options

One of the biggest advantages of cash on delivery is that it offers a flexible payment method for customers. With cash on delivery, you only pay for the product once it's in your hands, which reduces the risk of losing your money to scammers.

You can also inspect the product and test it out before paying for it. If the product is faulty or not as advertised, you can easily return it without any additional charges.

No Dependency on Payment Cards

Cash on delivery is a great option for those who don't have access to credit or debit cards, especially in suburban or rural areas where card usage is limited.

As the name suggests, you are going to be given a cash payment once the buyer is happy with the product. This can be great for customers who don't have a personal bank account and would prefer to do cash on delivery.

With cash on delivery, the transaction is completed once the package is reviewed, making it an easy and comfortable option.

No Online Payment Frauds

Another advantage of cash on delivery is that it provides protection against online payment fraud. As no financial records are required, such as credit card or bank account information, customers can shop without the fear of their financial data being compromised.

Cons Of Cash On Delivery (CoD)

Vulnerable to Losses

One of the major drawbacks of cash on delivery is that the vendor becomes vulnerable to losses if the buyer returns the goods without reimbursement.

The vendor spends all their money to supply the product, but if it's not received by the customer, the whole shipping cost goes to waste, reducing profits.

Higher Risk of Fraudulent Activity

Fraudulent activity has become a common occurrence on the customer end with CoD payments. Since customer information is not genuine, the risk of theft is higher, resulting in a loss for the vendor.

No Guarantee Of Payment

As with a lot of the cash on delivery cons, there is a high risk that you will incur the cost of products that are stolen or not paid for.

Because the customer pays after the delivery there is always a chance they simply don't pay. Of course, everyone hopes that you will get the cash on delivery, but it can happen.

Additional Costs

Sometimes, when you opt for cash on delivery, courier companies may charge you more than for advanced payment. This extra cost is often termed as security money, and frequent buyers may feel the burden of paying extra every time.

A lot of store owners don't take into account that courier companies charge to use their services. So unless you are able to add the delivery fee as part of that initial sale, you may start to lose money.

Limited Customer Reach

Trying to find potential customers buying your products can be difficult, especially as you will start out with local deliveries, or low-cost delivery options.

Unlike Drop shipping which relies on a large number of products being sold and shipped, thus resulting in low-cost delivery costs from the fulfilment centre. Cash on delivery is all on you to deal with, so you will probably try and deliver most of the orders yourself.

As such, you are not going to want to drive for hours to deliver products or pay a high cost for a delivery fee. 

What Is Dropshipping?

Dropshipping is an advanced payment mode of e-commerce where the customer pays the supplier beforehand via electronic cash transfer.

This calls for faster shipping and delivery as the shipping commences as soon as the supplier is paid. Although it sounds quick and lucrative, there are many risks to this mode of payment. Let's discuss in detail the merits and demerits of Drop Shipping.

Pros of Dropshipping:

Low Start-up Costs

One of the most significant advantages of dropshipping is the low cost of entry. With no need to manage inventory, warehousing or processing, starting a dropshipping business requires minimal investment, making it an attractive option for those with limited capital.

You can get your dropship business up and running, receiving payments and shipping products for under $100 upfront cost.

You can use the payment received from your customer, to then order the product from the product fulfillment company you are going to use. Pocketing the profit.

Quick To Get Started

Starting a new drop shipping business doesn't take a lot of time to get started. It is possibly the fastest e-commerce-based business model. With the ability to get a complete store setup within a few hours.

You can even purchase ready-made stores with pre-written sales copy, hundreds of products, or even just a single product ready to start selling.

Unlimited Products

Due to the nature of drop shipping, you are not constrained to a small number of products. As you don't have to pre-buy them or work out if they will sell.

Instead, you can load your own store with 100 products, and if none of those products sell, or customers don't purchase them you can simply remove them all and have 100 new products ready to go with just a few clicks.

No Inventory/Warehousing Costs

Managing faulty inventories can be a costly and time-consuming challenge for many businesses. 

Dropshipping eliminates this issue by unloading the product pressure from you and passing it to the manufacturer and seller. By eliminating warehousing costs, you can focus more on building your brand and customer base.

No Delivery Hassles

Order fulfilment is another significant challenge for many businesses. With drop shipping, the third-party manufacturer or dealer handles all delivery and shipping issues. All you need to do is ensure that the orders are issued and met, giving you more time to focus on marketing your business.

Unlike cash on delivery which of course requires you to deal with fulfilment and shipping.

Added Time for Marketing

Without the need to manage inventory or handle order fulfilment, you have more time to focus on marketing your entire business.

You can use the capital you save to upgrade your website, improve your branding and expand your customer base.

Multiple Payment Methods

As you will be selling products online, usually with a platform or online store builder, there are usually a number of payment gateways available.

That can include receiving payment via credit or debit cards, cash if you so wish, or even a payment system such as PayPal or Klarna.

Cons of Dropshipping:

Relatively Low Margins

While dropshipping can reduce storage and production expenses, it can also result in relatively low-profit margins.

To generate more revenue, you may need to sell more products, but the lower profit margins can make it challenging to achieve financial gains. As your business expands and you gain more consumer satisfaction, you may be able to increase prices and improve margins.

You will also have to take into account the additional costs of marketing and advertising. You may be able to find products for a low cost, but when you start to pay for shout outs, Google Ads or social media ads, the profit margin starts to drop.

Dependency on Suppliers for Order Fulfillment

In dropshipping, you don't share the responsibility and expense of production or storage, but customer satisfaction is still on your shoulders. You depend on suppliers for order fulfilment, which means the quality of the product cannot be monitored. If a customer receives a defective product, they may complain or abandon your store for a competitor, damaging your reputation.

Difficult To Find A Reliable Supplier

This, unfortunately, can be a killer for any ecommerce store. Trying to find a decent supplier who can help you grow your business, with a quick delivery method, and high-quality products is hard.

You can and will spend a lot of your first few months testing out different suppliers to discover a reliable supplier, if you are lucky you may even find a trusted local supplier who could fulfil your orders. Products such as Salehoo can help you find those local suppliers who can still be competitively priced.

Conclusion:

In conclusion, choosing between Dropshipping and Cash on Delivery is a decision that requires careful consideration of the unique needs and goals of your e-commerce business. Each model has its own advantages and disadvantages, and what works well for one business may not work as well for another.

If you're looking to start an e-commerce store with a low initial investment and minimal inventory management, Drop shipping may be the best choice for you. This model offers lower upfront costs, easier scalability, and no shipping headaches. However, if you're selling high-value products or looking to establish trust with your customers, Cash on Delivery may be the better option. This model offers greater customer trust, reduced risk of fraud, and payment only upon delivery.

Ultimately, the choice between Drop shipping and Cash on Delivery should be made based on the specific needs and goals of your business. By carefully considering the advantages and disadvantages of each model, you can make an informed decision that will help you achieve your e-commerce objectives.