Some business owners might wonder whether to offer cash on delivery (COD) as a payment method on their ecommerce sites. With COD, customers pay delivery companies lump sums that cover product prices, shipping costs, and handling fees upon receipt. This payment method has been in use for a long time, even before the widespread adoption of online shopping and credit cards.

While there is some demand for COD today, its role is changing because of certain challenges. These include transaction fees and operational burdens, as well as the growing popularity of cashless payments.

In this article, we explain the typical fees for COD, its pros and cons, important considerations for implementation, and alternative payment methods.

Key takeaways

• The standard fee for cash on delivery (COD) is generally ¥300–¥1,000. However, this amount can vary depending on the shipping company and order amount.
  
• COD and collect on delivery seem similar but are subtly different. With COD, the customer pays an amount that includes both the product price and the shipping costs. With collect on delivery, customers only pay the shipping costs upon receipt.
  
• In Japan, the use of COD is on the decline due to the growing popularity of cashless payments.
  
• COD has some drawbacks, such as service fees and the need for in-person pickup. Businesses also face the risk of unpaid or fraudulent orders.
  
• Using COD as a payment method requires a contract with a shipping company, and it’s also important to establish terms and conditions for its use in advance.
  
• If COD isn’t suitable for a business model, the business can consider other payment methods, such as credit card payments, mobile carrier billing, and konbini payments.
  

What are cash on delivery fees?

COD fees are additional charges incurred when using the COD shipping method. When purchasing items on an ecommerce site, customers can choose from multiple payment options, such as credit cards and online payment services. However, COD is often used by customers who don’t have credit cards or are hesitant to use online payments.

Various cashless payment methods have become more widespread, and COD fees are charged in addition to shipping costs. Therefore, the use of COD has been declining in Japan.

Differences between cash on delivery and collect on delivery

When paying on ecommerce sites, collect on delivery might be an option. However, the difference between this and COD can be confusing. COD and collect on delivery are similar in that payment is made upon receipt of goods, but the nature of the payment and mechanisms involved differ significantly.

With COD, the customer must pay the delivery company the product price, shipping fee, and COD fee upon receiving the item or items. The delivery company collects payment from the customer and transfers the funds to the business at a later date. This means that COD fees are often incurred and paid by the customer, in addition to shipping costs.

In contrast, with collect on delivery, customers pay only shipping fees to the delivery company upon receipt. Payment for the merchandise must be made in advance, and the delivery company does not collect that money when delivering.

Usage rate of cash on delivery in Japan

According to the Ministry of Internal Affairs and Communications’ Report on Communication Usage Trends in 2024 (Household Edition), the use of COD as a payment method for online purchases has been declining year by year. The usage rate gradually declined from 2022–2024, while the use of cashless payment methods rose. This includes payments via credit cards and quick-response (QR) codes that allow transactions to be completed online without leaving home.

While convenience is certainly a factor, benefits such as reward points and cashback are also believed to be driving the growing use of cashless payments.

How much are cash on delivery fees?

COD fees vary depending on the shipping carrier and price range of the order. They generally range from about ¥300–¥1,000.

For example, major shipping companies typically charge around ¥300 for orders under ¥10,000; ¥400 for orders under ¥30,000; ¥600 for orders under ¥100,000; and ¥1,000 for orders under ¥300,000.

However, it’s important to remember that fees are subject to change at any time depending on each company’s rate adjustments and service offerings. Check the company’s website and other sources for the latest information.

Advantages and disadvantages of cash on delivery

With the recent popularity of other payment methods and customers’ overall preferences for cashless payments, deciding whether to offer COD can be difficult for businesses. Below, we provide advantages and disadvantages of COD for customers and businesses. This can help businesses determine whether this payment method is a good option.

Advantages for customers

COD offers a certain level of security because it allows customers to pay in cash and eliminates the need to enter credit card information online. Here are some advantages of COD for customers:

• Customers do not need to enter credit card information.
  
• COD can be used without concerns of information leaks.
  
• Customers can check products before accepting deliveries.
  

Disadvantages for customers

COD also has the following downsides for customers:

• COD fees are added to shipping costs, which increases the total amount due.
  
• COD requires in-person handover, so customers can’t use parcel lockers or curbside delivery.
  
• Customers must have cash on hand in advance.
  
• It is harder to receive benefits that are available with cashless payments, such as reward points.
  

Advantages for businesses

COD meets the needs of certain types of customers. Here are its advantages for businesses:

• Businesses can reach customers who don’t use credit cards or are hesitant about making online payments.
  
• Offering more payment options can help prevent loss of sales opportunities.
  
• COD can help businesses reach a wider range of customers.
  

Disadvantages for businesses

Using COD could result in higher costs and greater operational burdens for businesses. Here are some of its disadvantages:

• In addition to long-term absences and refusal to accept deliveries, businesses also risk nonpayment after delivery because of prank orders or other factors.
  
• If an item is not claimed, the business incurs round-trip shipping costs, which can result in a loss.
  
• The burden of COD fees and shipping costs is significant and puts pressure on profits.
  
• There is increased operational workload for issues such as deposit management and shipping logistics.
  

How to use cash on delivery and key points

There are a few points to keep in mind when implementing COD as a payment method. The process for implementing COD varies depending on the sales channel. However, even if a business is already working with a particular shipping company, the business might need a separate contract or application to use COD.

How to implement cash on delivery

If a business operates its own ecommerce site, it can enter into a direct contract with a shipping company and set up a system for collecting payments and transferring funds. To centrally manage all payment methods—including COD—it can partner with a payment agent.

On the other hand, COD is often already available as a payment option on ecommerce malls and online store creation services. Therefore, businesses can enable COD simply by configuring the settings on the admin panel. Keep in mind that a contract with a delivery company is often required for the actual delivery and payment collection, so make sure to confirm this in advance.

Key considerations when using cash on delivery

When implementing COD as a payment method, it’s important to consider the risks to the business, as mentioned in the disadvantages above. There are measures to offset these disadvantages, including disabling COD for first-time customers or setting maximum order amounts.

By doing so, COD is limited to trustworthy customers, which can reduce the risk of nondelivery.

Alternatives to cash on delivery

Below, we discuss payment methods other than COD that ecommerce businesses can use.

Credit card payments

Credit card payments are the most widely used cashless payment method on ecommerce sites and are considered a highly convenient option by many customers. In addition, since payments are settled immediately, credit card payments offer businesses the advantage of easier payout and deposit management.

QR code payments

QR code payments allow customers to make payments easily using their smartphones. In addition to convenience, this method offers benefits such as loyalty point rewards.

Convenience store (konbini) payments

Konbini payments allow customers to pay in cash. This payment method accommodates customers that do not use credit cards. Be aware that it can take some time for payments to process.

Mobile carrier billing

Mobile carrier billing allows customers with smartphones to have their purchases charged to their mobile phone bills, even if they do not have credit cards.

Payment links

Payment links involve businesses sending links by email or other means to direct customers to payment pages. By signing up with a payment agent, businesses without their own ecommerce sites can set up secure payment environments.

Bank transfers

Bank transfers involve funds being transferred from the customer’s account to a designated account through a bank teller, automated teller machine (ATM), or online banking. Customers who don’t have bank accounts can pay in cash by visiting a financial institution’s branch or using an ATM. In Japan, bank transfers are frequently used for B2B transactions.

For these reasons, businesses are increasingly adopting systems that allow payments to be completed online. This can help mitigate the risk of nonpayment and improve operational efficiency.

How Stripe Checkout can help

Stripe Checkout is a fully customizable prebuilt payment form that makes it easy for you to accept payments on your website or application.

Checkout can help you:

• Increase conversion: Checkout’s mobile-optimized design and one-click checkout flow make it simple for customers to input and reuse their payment information.

• Reduce development time: Embed Checkout directly into your site, or direct customers to a Stripe-hosted page, with just a few lines of code.

• Improve security: Checkout handles sensitive card data, simplifying PCI compliance.

• Expand globally: Localize pricing in 100+ currencies with Adaptive Pricing, which supports 30+ languages and dynamically displays the payment methods most likely to improve conversion.

• Use advanced features: Integrate Checkout with other Stripe products, such as Billing for subscriptions, Radar for fraud prevention, and more.

• Maintain control: Fully customize the checkout experience, including saving payment methods and setting up post-purchase actions.

Learn more about how Checkout can optimize your payment flow, or get started today.