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How COD Continues To Be A Pain Point For MSMEs?

Let us have a quick look at the scenario and how it affects the Indian MSME segment.

Photo Credit : PTI


In an epic Biblical battle, David, a young shepherd defeated the enemy champion Goliath, and emerged as the King of Israel and Judah. He was able to achieve this feat against all odds despite coming from humble means. In modern times, the MSME sector - with its sheer potential - gives a stark resemblance to David which could be seen battling corporate giants. The enemy champion in this case comes across as Cash on Delivery - keeping the MSME segment always on the backfoot in the market.

COD orders comprise a considerable share of the payments market in India, especially vis-à-vis e-commerce payments. According to a report by RedSeer, COD payments are expected to stay stagnant in the e-commerce market until 2020. The reason behind this market development is the gradual shift of e-commerce companies towards tier II and tier III cities. 

Let us have a quick look at the scenario and how it affects the Indian MSME segment.

The COD Payments: A needless financial burden on the smaller e-tailers

It has to be noted that COD, perhaps, has been one of the chief drivers of the e-commerce market, especially considering that India is largely a cash-based economy. Despite the ongoing digitization, the nation continues to have a relatively lower penetration of digital payments. It was only during demonetization – wherein about 86 percent of the nation’s rotating currency was banned – that COD payments experienced a massive dip. Their share in the e-commerce segment fell from 58% to 47% within a matter of a few days. It was expected that the share of COD payments will continue to tumble from thereon. However, it jumped back to 54% right after demonetization, virtually receding to its previous level.

As a mark of positivity, the market share of these transactions decreased to 51% by mid-2018. Still, it is expected to hover around this level for the foreseeable future. The reason is e-commerce platforms’ gradual shift towards the non-urban market, which is inherently inclined to make cash-based payments. For small e-tailers though, unlike their larger competitors (who have deeper pockets), this comes across as an unfathomable challenge. 

COD remittance is a very intricate process that involves cash collection, receipt collation, reconciliation of accounts, etc. – with every individual phase adding its own complications and hence, delays to the payment. An e-tailer has to wait for about 1 to 2 weeks from the delivery of the product. They can often be seen taking formal and informal credit to unlock this locked-in capital during capital crunch. Nevertheless, this is just the tip of the iceberg.

For small packages, it takes at least Rs.70 to carry a package to a customer’s doorstep. When a customer refuses delivery of a product, it costs another Rs.30 to carry it back. This severely impacts the logistics costs and that too, without generating any revenue. Lately, RTO (Return to Origin - Failed Deliveries) rates of packages shipped via cash on delivery have gone up to about 35% of the total order volume of a merchant. This is over and beyond the packaging and handling cost of the product and upon return, the cost incurred in unpacking, checking, and restocking it.

Of late, certain measures are being taken in India to eliminate this teething trouble for MSMEs. For instance, logistics aggregators like Shiprocket have launched features like ‘Early COD’ for small businesses, which enables them to counter such challenges with guaranteed daily remittances as early as 2 days post package delivery. Still, concentrated efforts are needed within the segment to solve the problem. Finally, enabling the MSME David to battle the COD Goliath in India, thereby unlocking the segment’s true growth potential.

Disclaimer: The views expressed in the article above are those of the authors' and do not necessarily represent or reflect the views of this publishing house. Unless otherwise noted, the author is writing in his/her personal capacity. They are not intended and should not be thought to represent official ideas, attitudes, or policies of any agency or institution.

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Saahil Goel

The author is CEO and Co-Founder, Shiprocket

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