Tech, ExplainedE-commerce, travel and logistics
Concept

Cash on delivery and RTO

Paid at the door, or sent back.

HOW IT WORKSThe buyer choosescash on deliveryat the checkoutThe sellerships the parcelwithout being paidAt the door, thebuyer pays therider, or refusesA refused parcel istried again, thenmarked RTOIt returns to theseller, who pays forshipping both waysPaying at the door lets wary buyers shop, but each refusal costs the seller two trips and no sale.HOW IT WORKSThe buyerchoosescash ondelivery atthe checkoutThe sellerships theparcelwithoutbeing paidAt thedoor, thebuyer paysthe rider,or refusesA refusedparcelis triedagain, thenmarked RTOIt returns tothe seller,who paysfor shippingboth waysPaying at the door lets wary buyers shop, but each refusal costs the seller two trips and no sale.HOW IT WORKSThe buyer chooses cash ondelivery at the checkout↓The seller ships theparcel without being paid↓At the door, the buyerpays the rider, or refuses↓A refused parcel is tried again, thenmarked RTO↓It returns to the seller, who pays forshipping both waysPaying at the door lets wary buyers shop, but each refusalcosts the seller two trips and no sale.
The buyer chooses cash on delivery, the seller ships unpaid, and at the door the buyer either pays the rider or refuses, in which case the parcel returns to the seller, who pays for both trips.
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Cash on delivery and RTO are two linked ideas in Indian online shopping. Cash on delivery (COD) means that the buyer pays when the parcel reaches the door, in cash or by UPI, instead of paying online while ordering. RTO, short for return to origin, is what happens when the buyer refuses the parcel or cannot be found: the courier carries it all the way back to the seller. The seller then pays for shipping in both directions, and has sold nothing.

Why does India use COD so much? Many shoppers do not trust a new website with their money until they have seen the product. Some do not have a card, or prefer not to pay online. COD lets them buy anyway, so sellers who offer it receive more orders. But a COD buyer has paid nothing yet, so changing their mind costs them nothing. So COD orders are refused far more often than orders paid in advance.

Here is how it works in general. The buyer chooses COD at the checkout. The seller packs and ships the parcel. The courier's rider reaches the door and collects the payment. If the buyer pays, the courier sends the amount to the seller a few days later, minus its charges. If the buyer refuses, is not at home or gave a wrong address, the courier tries again, usually two or three times. After that, the parcel is marked RTO and travels back to the seller's warehouse. The seller has paid for packing, for shipping out and for shipping back, and the product may come back damaged.

Software now helps sellers reduce refusals, both before and after the parcel is shipped.

Take, for example, a skincare brand that sells from its own website. Its one-click checkout runs COD risk scoring on each order. For a risky order, it asks for a small advance payment by UPI before the parcel is shipped.

Consider a parcel that the courier fails to deliver on the first attempt. Delivery failure prediction sends the buyer a message to confirm the address and a convenient time before the second attempt.

Say a seller ships to every pin code in India. Its shipping software chooses, for each COD parcel, the courier with the fewest refused deliveries in that area.

How is RTO different from a customer return? In an RTO, the buyer never accepted the parcel. In a return, the buyer accepted it and paid, and later sent it back, for example because it did not fit. Returns are handled by reverse logistics, which checks each item and decides whether it can be sold again. Both cost the seller money, but after an RTO there was never a sale at all.

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E-commerce, travel and logistics
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