The State of Cash on Delivery in the UAE

Published on Jun 12, 2024

One of the most frequently debated topics among customers at our fulfillment centre is the viability of Cash on Delivery (COD) in the UAE. Many of our clients ask us, “What percentage of orders are paid via COD?” and “What success rate can I anticipate with COD deliveries?” Although the answers can vary based on numerous factors, we have amassed enough data to provide a comprehensive overview of COD trends in the UAE.

The Prevalence and History of COD in the UAE

Firstly, it's important to note that COD is not a universally common payment method. However, it remains prevalent in Gulf countries, particularly the UAE and KSA. Historically, COD gained popularity due to a combination of factors including low credit card penetration, trust issues with online payments, and cultural preferences for handling cash transactions. Additionally, there has been a longstanding cultural preference for cash transactions, partly due to concerns about fraud and mistrust in online payment systems. The data we present below hopefully sheds some light on the state of COD payments in the UAE.

Analyzing the Data: Percentage of COD Orders in the UAE

To better understand the state of COD, we analyzed data from approximately 30,000 orders. Here are some key statistics that emerged:

Percentage of COD Orders in the UAE

Our data indicates that COD accounts for nearly 30% of the orders processed. This aligns with feedback from our customers who report a significant increase in orders—up to 30%—when COD is offered as a payment option. Despite this increase, COD comes with its own set of challenges.

The two most notable challenges that COD causes is a delay in cash-flow and a significantly lower delivery success rate. On one hand, enabling COD will delay payments by two weeks due to the gap between courier collection time and remittance to your account. Whereas payment gateways offer you instant access to that cash flow. Furthermore, COD orders are more likely to not be delivered to the customer as we highlight more below.

The Challenges: Percentage of Orders Failed

To assess the success rate of each payment type, we examined the percentage of completed orders, returned orders, and orders returned to origin (RTO). For clarity, an “RTO” is a delivery that fails to be delivered initially, whereas a “Return” is when a customer initiates a return after accepting the order.

Our findings show that nearly 20% of COD orders result in RTOs. Reasons for this high rate include customers changing their minds about impulse purchases, providing incorrect addresses and contact details, and sometimes a reluctance to accept the order when payment is due at delivery. Another significant factor is the lack of immediate payment commitment, which can lead to a higher rate of order abandonment. The high RTO rate poses a significant problem for e-commerce businesses, as it not only results in lost sales but also incurs marketing and logistics costs associated with processing these orders.

Strategies to Improve COD Success Rates

At Shorages, we have implemented several measures to enhance the success rate of COD orders in the UAE:

• Address Verification: A customer support member contacts the customer to verify the address. This step helps reduce the number of deliveries that fail due to incorrect or incomplete address information.
• Same-Day Shipping: Orders are shipped and attempted on the same day to minimize the chance of impulse buyers changing their minds. By reducing the time between order placement and delivery, customers are less likely to reconsider their purchase.
• Alternative Payment Options: Customers are given the option to pay online before delivery if they are not home during the delivery attempt. This flexibility can help ensure that orders are successfully completed even if the customer is temporarily unavailable.
• Multiple Delivery Attempts: Orders are attempted on three separate days to maximize the success potential. By making multiple delivery attempts, we increase the likelihood of catching the customer at home.

These strategies have helped some of our clients improve their COD success rates from 70% to 80%. Nonetheless, COD returns remain an inherent challenge, and businesses should adopt this payment method only when it is economically viable.

The Advantages of Pre-Paid Orders

On the other hand, pre-paid orders exhibit a failure rate of only 6%, with more than half of these failures due to customer-initiated returns, and a minimal number resulting from RTOs. Pre-paid orders are generally more reliable as the payment has already been processed, significantly reducing the likelihood of order rejection upon delivery.

Conclusion

In conclusion, COD continues to be a popular payment method, constituting almost 30% of e-commerce volume as of June 2024 despite the rise of Buy Now Pay Later (BNPL) solutions. E-commerce businesses must carefully consider whether to offer COD, weighing the potential increase in sales against the costs associated with failed deliveries.

Our recommendation is to pursue COD only if the profit from successful deliveries outweighs the costs of failed ones. Additionally, partnering with reputable fulfillment and last-mile delivery companies can help improve success rates, making COD a more viable option. Choose your suppliers wisely, and remember that the lowest price isn’t always the best deal. By implementing effective measures and collaborating with trusted partners, businesses can navigate the complexities of COD and leverage its benefits to enhance their overall sales strategy.