Cash on Delivery (COD) services, powered by package deliveries in e-commerce transactions, are emerging as a good opportunity for many logistics companies such as DTDC’s DotZot, Delhivery and Gati.
Firstly, it increases the logistic service provider’s margins because the person delivering the package also collects the money. As a result, the logistics service provider gets more money to collect the money and return it to the seller. Second, because of collecting money from their customers’ end users (e-commerce websites), there is pressure on customers not to delay payments to the logistics company.
For example, DotZot collects either a flat fee or 1.5-2% of the value collected from the end user, whichever is greater, for providing a COD service, says Sanjiv Kathuria, co-founder and CEO. of Dotzot, a subsidiary of a courier company. DTDC. About 50 percent of e-commerce deliveries made by Dotzot involve collection of delivered packages. Likewise, Delhivery, another logistics service provider in the e-commerce segment, charges an average of 1.8% of the transaction value, says Sahil Barua, co-founder and CEO. About 60% of e-commerce deliveries made by Delhivery are cash.
Gati CFO Sanjeev Jain believes COD is a growth engine for the e-commerce segment, which has an operating margin of 15-16%.
As logistics service providers improve the time frame in which they credit customers with money, the payment cycles of logistics companies are improving as well. “There is tremendous pressure from e-commerce companies to quickly re-credit COD money to accounts. It also puts pressure on them to make payments faster, ”says Kathuria.
That said, companies have limits on the level of cash they collect. DotZot collects an average of around 1,800 to 2,000 in each delivery, and typically collects no more than 25,000. Delhivery collects an average of 800-1,000 in cash for its e-commerce deliveries, although it has already collected 4.5 lakh for the delivery of airline tickets.
“We have different protocols depending on the collections involved. For collections over 10,000, the standard field manager does not go and we usually ask for documents, such as the PAN card, ”adds Barua.