The unspoken problem of COD reconciliation in e-commerce

Despite the serious monetary implications of ineffective COD reconciliation, this was an area of logistics that went largely ignored by the ecommerce sector. In more recent times, however, more and more enterprises are beginning to see its value, having watched their brethren suffer major losses in money and time.

COD reconciliation is a vital process when it comes to maintaining a healthy flow of money within your business and without it, your profit margins and overall operations can take a pretty severe hit.

That’s why logistics-integrated companies have been working hard to understand the minutiae of difficulties that occur in the process of COD remittance and what impact they can have if left unchecked.

What is COD reconciliation and its importance in e-commerce?

COD reconciliation is the process of balancing out your billing books to account for all COD orders. When a COD order is delivered, the money for the order is collected by the carrier. After multiple COD orders have been successfully completed, the collective cash payments for the orders are then handed over to your business, thereby closing said orders.

However, each carrier has its own protocol for this process of COD remittance. They may remit the funds on a daily, weekly or per-order basis.

The result is that you’ll find yourself holding a plethora of bills for COD orders that will either be remitted, non-remitted or partially remitted. This is when COD reconciliation comes in, literally trying to reconcile the COD payments you have received with the completed COD orders listed in your billing cycle.

There are three important things to think about when it comes to COD reconciliation. The first is with regard to bookkeeping. Messy and unbalanced accounts with numerous discrepancies in order payments can be extremely troublesome when it comes to dealing with regulatory mandates, like filing for tax returns or other compulsory submissions.

COD reconciliation is a vital process when it comes to maintaining a healthy flow of money within your business.

The second thing to think about is the sheer volume of COD orders received by e-commerce companies around the globe. Since a huge percentage of the population is still getting accustomed to placing their faith in online shopping, many have a preference for cash-on-delivery.

The third thing which makes COD reconciliation a truly important aspect of ecommerce operations is the effect it has on your cash flow.

At the end of the day, the capital you use for your business functions, including logistics, all flow from your income, i.e., the money received for services rendered and orders delivered. The remainder of this money, after all operational costs have been covered, is what makes up your profit margin.

So when discrepancies arise in the process of COD reconciliation, your cash flow will take a major hit, starting with your profitability. It could even become irregular, leading to blockages in your business operations.

The 5M solution to COD reconciliation:

For every problem presented, a solution can be found. In the case of COD reconciliation, experts found what is being called the 5M Solution.

This solution takes you through the 5Ms of COD reconciliation. They are seemingly simple exercises that work both independently and collectively to help you resolve COD remittance issues and create a healthy flow of capital into your enterprise.

This multifaceted medium for mindful and methodical mitigation of money meandering will motivate your motley crew of carriers. This basically means these five tricks will help you ensure your courier partners regularise their COD remittance cycles.

Carriers may take anywhere between two days and 10 days to remit COD orders.

1. Manage all of your COD orders with uniformity

First thing’s first, you need to get organised. This means having a single platform or dashboard for viewing all COD orders and categorising them based on their delivery status as well as their remittance status.

2. Monitor COD remittance at AWB-level granularity

Once an order has been delivered, it is typically considered completed. However, a COD order still needs to be identifiable in order to monitor remittance for it. Since AWBs (air way bills) designate identification codes (i.e., tracking numbers) to orders, monitoring COD remittance for orders must be done at an AWB level to be effective.

3. Maintain a reference log of all COD files for analysis

Carriers may take anywhere between two days and 10 days to remit COD orders. Furthermore, customer complaints or queries can also arise long after an order has been completed.

With these lapses in time looming overhead, it’s absolutely essential to maintain a record of all your COD orders, past and present, which can be easily referenced and searched through for resolutions and for analytics.

4. Measure carrier patterns causing irregular cash flow

With a clear database of all COD orders kept armed and ready, the various remittance patterns of different carriers can be determined through careful analysis. Through this mechanism, you can gain actionable insights on which carriers need to make what changes to their remittance cycles in order to ensure regularisation of your cash flow.

5. Minimise discrepancies in your accounting cycles

Tracking carrier patterns is a long-term exercise. In the here and now, you need to deal with discrepancies as soon as they occur to mitigate the fluctuations and inconsistencies in your accounts.

You would therefore need to send immediate and frequent non-remittance reports to carriers, informing them of their duty to make good on their debts. This will increase the rate at which certain carriers perform their remittance obligations and result in a healthier cash flow cycle for your business.

Conclusion

Despite the fact that the buzz on the subject of COD reconciliation hasn’t yet circulated around e-commerce news, this process remains absolutely vital to the core of any successful ecommerce business.

Cash flows through every business like blood through human veins. It keeps the various organs of your enterprise alive and functional, providing sustenance and strength. Much like how a bad diet or an unhealthy lifestyle can stop the flow of blood in your body, irregularities in COD remittance can impair the flow of cash to the remainder of your business operations.

Without a proper system for COD reconciliation, your business could be on the cusp of suffering an economic heart attack.

Prashant Gupta, co-founder, Clickpost.