Cash on Delivery: Are Failed Orders Eating Into Your Profits?

The hidden cost of a failed COD order

Cash on Delivery remains an important payment option in many markets. For customers who don’t have access to digital payments, don’t trust entering their card details online, or simply prefer paying once they receive their order, COD can make the difference between completing a purchase and abandoning it.

For SMEs, that can mean more customers and more sales. But COD also shifts much of the risk from the customer to the seller. With a prepaid order, the customer has already committed financially. With COD, you may start spending money before receiving anything.

Let’s go back to our failed order. You may have paid for:

• Packaging. The box, bag, wrapping, label or protective materials you used.
• Delivery. Depending on your courier agreement, you may still pay for the delivery attempt.
• Return shipping. Some couriers also charge to return an undelivered package.
• Staff time. Someone processed the order, prepared it, communicated with the customer and handled the return.
• Unavailable inventory. While that product was travelling to and from a customer who never paid for it, it wasn’t available to sell to someone else.

And when it comes back, the packaging may need replacing or, depending on the product, it may no longer be possible to sell it in exactly the same condition.

One failed order may not seem significant. Fifteen or twenty every month can be a very different story. 

Do you know your failed COD rate? 

This is where things get interesting. Many businesses know how many orders they receive, their average order value and roughly how much they spend on delivery.

But ask “What percentage of your COD orders fail?” or “How much did failed COD orders cost you last month?” and the answer is often less clear.

Let’s imagine a small online business receives 100 COD orders each month, and 15 are returned because customers cannot be reached, refuse the delivery or change their minds.

Now imagine each failed order costs the business $3 for outbound delivery, $2 for the return and $1 for packaging. That’s $6 per failed order, before we even count staff time or the opportunity to sell that inventory to someone else.

With 15 failed orders, the business is losing $90 every month. Over a year, that becomes $1,080 spent on orders that generated zero revenue.

Change the shipping costs, failure rate or number of orders and that figure can quickly become much larger.

This is why COD shouldn’t simply be treated as another payment option. It should be treated as a business cost that you measure.

Before you remove COD altogether… 

The obvious reaction might be: Fine. I’ll stop offering Cash on Delivery.

But that isn’t necessarily the right answer either. In some markets, removing COD could mean losing customers who genuinely want to buy from you.

A better question is: How can I keep the sales COD brings while reducing the number of failed deliveries?

Fortunately, there are several relatively simple things you can test.

1. Confirm the order before you send it

A short WhatsApp message can save an unnecessary delivery:

"Hi Sara! Thanks for your order. We’re preparing it for delivery tomorrow. Could you please confirm that this address and phone number are correct?"

The customer has now actively reconfirmed the purchase, and you have an opportunity to catch an incorrect address or phone number before paying to send the package.

It’s a very small extra step that could prevent a much more expensive one later.

2. Tell customers when their order is actually coming

“Your order is on its way” is useful. “Your order will arrive tomorrow between 10:00 and 14:00” is much more useful.

Customers may genuinely miss deliveries because they don’t know when to expect them. If your courier provides tracking links, delivery windows or notifications, make sure customers receive them.

The easier you make it for someone to receive, reschedule or redirect their delivery, the better your chances of completing the sale.

3. Look for patterns in failed orders

Don’t just record that an order failed. Record why.

Was the customer unreachable? Was the address incorrect? Did they refuse the package? Did delivery take too long? Had they changed their mind? Or did the courier fail to reach them?

After a few months, you may discover that what looked like “customers behaving badly” is actually a different problem. Perhaps deliveries to one area regularly fail, your delivery times are too unpredictable, customers ordering through Instagram don’t realise how long delivery will take, or one courier has a much higher failure rate than another.

You can’t fix a problem until you know what is causing it.

4. Consider asking for a small deposit

For higher-value or customised products, asking customers to pay a small amount upfront can reduce your risk. It doesn’t necessarily need to be the full purchase price.

Even covering the delivery fee in advance creates a small level of commitment and protects the business from absorbing the entire cost if the customer disappears.

Whether this works will depend on your market, customers and the payment methods available to them, so this is something to test rather than automatically apply to every order.

5. Give customers a reason to prepay

Another option is to make prepaid orders more attractive rather than making COD less attractive.

You might offer free or cheaper delivery, a small discount, faster processing, loyalty points or another benefit for customers who pay in advance.

The goal isn’t to force customers away from COD overnight. It’s to gradually shift customers who can prepay towards a payment method that carries less risk for your business.

6. Pay attention to repeat failed orders

One failed delivery can happen to anyone. Three failed deliveries from the same customer deserve attention.

Keeping a simple record of repeat failed COD orders can help you decide when to request advance payment before accepting another order. This doesn’t require complicated technology; even a basic customer note or spreadsheet can help.

But don’t make genuine customers prove themselves

There is an important balance here.

If every COD customer has to respond to three WhatsApp messages, confirm their identity, pay a deposit, answer a phone call and reconfirm their address before you ship a $10 product, you may solve one problem by creating another.

Customers value convenience, so the goal should be to identify the smallest intervention that meaningfully reduces failed orders.

Start by confirming orders, improving delivery communication and tracking why deliveries fail. Introduce additional measures only where the numbers tell you they are needed.

When does COD stop being worth it?

This may be the most important question of all.

Imagine COD increases your sales by 20%. That sounds great. But what if failed deliveries, courier fees, returns and administrative work consume most of the profit those additional sales generate?

This is why looking only at your number of orders can be misleading. Try tracking these figures every month:

• Total COD orders
• Successful COD deliveries
• Failed COD deliveries
• COD failure rate
• Average cost of a failed delivery
• Total monthly cost of failed COD orders

Then compare those costs with the additional sales COD generates.

You may discover that COD works extremely well for your business. You may find that it works for certain products, locations or customer groups but not others. Or the numbers may tell you that it’s time to encourage more customers to prepay.

There is no universal answer, but there should be an informed one.

One number worth calculating today 

Here’s a small challenge: go back through your orders from last month and count how many COD deliveries were unsuccessful.

Then calculate what each one actually cost you. Not the value of the lost sale, but the money your business spent trying to complete it.

Add up your delivery, return and packaging costs, multiply that amount by the number of failed orders, and see what you get.

You may be pleasantly surprised, or you may suddenly understand where a quiet little hole in your profit has been hiding. Either way, you now have something useful: a number you can act on.

Cash on Delivery doesn’t have to disappear from your business. But your customers shouldn’t be the only ones deciding whether it works for you.

The numbers should too.