Ask most online sellers in Kenya what cash on delivery costs them and they will quote you the collection fee. Three percent, or whatever their courier charges on the amount collected. It is a clean number, it appears on an invoice, and it is almost never the expensive part.

The real cost of COD is the deliveries that never complete. Here is where the money actually goes, and what you can do about it.

The failed delivery is the expensive one

When a prepaid order goes out, the money is already yours. If the customer is not home, the parcel comes back, you try again, and you have lost a delivery trip. Annoying, but the sale is intact.

A COD order that fails is a different animal. The customer is not there, or has changed their mind, or was never especially serious in the first place. You have paid for the delivery attempt. You have paid to have the item picked and packed. The item has travelled to the far side of Nairobi and back. And you have earned nothing at all, because nothing was ever paid.

Then the item needs checking back into stock, and if the packaging was opened or damaged in transit, repackaging. That is another cost most sellers never count.

The uncomfortable arithmetic: a failed COD delivery does not cost you the collection fee. It costs you the delivery, the fulfilment, the return trip, the restocking, and the margin you would have made. On a low-margin product, a handful of failures can wipe out the profit on a dozen successful orders.

Why COD fails more than prepaid

This is not a mystery. When a customer pays upfront, they have committed. They have entered card details or completed an M-Pesa transaction. They have made a decision and acted on it.

When a customer orders on COD, they have committed to nothing. Clicking a button on a website at 11pm and paying a rider two days later are very different levels of intent. Between those two moments, they can go cold, find the item cheaper somewhere else, spend the money, or simply forget they ordered anything at all.

None of that is a reason to stop offering COD. In this market it is often the difference between a sale and no sale, because plenty of buyers will not pay a business they do not know upfront. But it does mean COD orders need managing differently from prepaid ones.

What actually reduces the failure rate

Four things, roughly in order of effect.

Confirm the order before it leaves the warehouse. This is the big one, and it is the single change that makes the most difference. A short call before dispatch does three things: it confirms the person still wants the item, it confirms someone will be there to receive it, and it catches the wrong or incomplete address before a rider is standing in the wrong street. Orders that fail confirmation cost you a phone call. Orders that fail on the doorstep cost you everything above.

Tell the customer when it is coming. A large share of failed deliveries are not rejections at all, just absences. Someone who knows a parcel is arriving on Thursday morning arranges to be there, or tells you to come Friday instead. Silence produces absences.

Watch your own order patterns. Certain things correlate with COD failure: unusually large orders from new customers, orders placed late at night, addresses that are vague, repeat orders from someone who has failed to take delivery before. You do not need a system to spot these. You need someone looking.

Make partial prepayment an option, not a requirement. Some sellers ask for a small deposit on high-value COD orders. It filters out the least committed buyers without blocking the ones who genuinely will not pay in full upfront.

Cash handling is the other half

Everything above concerns getting the delivery to complete. The second question is what happens to the money afterwards, and it is the one sellers should ask a courier about most carefully.

Things worth knowing before you hand anyone your customers’ cash:

• How quickly is it remitted? The gap between your customer paying and you receiving is working capital you cannot use. A courier holding a week of collections is holding a week of your cash flow.
• How is it reconciled? You should be able to match every shilling received against a specific order, not just get a lump sum and a total.
• What happens when an amount is short? There should be a defined process, not a conversation.
• What happens if the rider cannot be reached? Ask directly. The answer tells you how seriously the operation is run.

A courier that answers these crisply is one that has thought about them. Vagueness here is the warning sign that matters most, because this is the part where your money is in someone else’s hands.

The summary

Cash on delivery is not expensive because of the collection fee. It is expensive because a meaningful share of COD orders never complete, and every one that fails costs you far more than the fee on one that succeeds.

Confirming orders before dispatch is the cheapest fix available, and most sellers do not do it because it takes staff time they do not have. That is worth knowing whether you handle it yourself, hire for it, or outsource it.

We run order confirmation as part of our call centre service, and we handle cash on delivery collection and remittance across all 47 counties in Kenya. If you want to work out what COD is actually costing your business, send us your numbers and we will go through it with you.

Read next

• How to choose a fulfillment partner in Kenya — including the cash-handling questions worth asking before you commit.
• Should you outsource fulfillment? — a cost breakdown with real rates for Kenya.

The services referred to above are our dedicated call centre, which handles order confirmation, and last-mile delivery and cash on delivery.

GreyBox Courier & Fulfillment Centre
Shankardass House, Moi Avenue, Nairobi
info@greyboxcourier.com · +254 711 272 820