Cash collection is money in bank for logistics firms

Cash-on-delivery (COD) services, fuelled by parcel deliveries in e-commerce transactions, are emerging as a good opportunity for many logistics firms such as DotZot of DTDC, Delhivery and Gati.

First, it adds to the margins of the logistics service provider because the person who delivers the parcel also collects the money. As a result, the logistics service provider gets more money for collecting the cash and transferring it back to the seller. Second, by virtue of collecting cash from end-users of their customers (e-commerce websites), there is pressure on customers not to delay the payments to the logistics company.

For instance, DotZot collects either a fixed charge or 1.5-2 per cent of the value collected from the end-user, whichever is higher, providing COD service, says Sanjiv Kathuria, co-founder and CEO, Dotzot, a subsidiary of courier firm DTDC. About 50 per cent of e-commerce deliveries done by Dotzot involves cash collection for delivered parcels. Similarly, Delhivery, another logistics service provider in the e-commerce segment, charges an average 1.8 per cent of the transaction value, says Sahil Barua, co-founder and CEO. About 60 per cent of e-commerce deliveries done by Delhivery is cash collection.

Gati’s CFO Sanjeev Jain feels COD is a growth driver for the e-commerce segment, which is showing an operating margin of 15-16 per cent.

While logistics service providers are improving the time within which they credit the money back to customers, the payment cycles for logistics companies also improve. “There is tremendous pressure from e-commerce firms to credit the COD money back to the accounts fast. This also creates a pressure on them to make payments faster,” says Kathuria.

That said, firms have limits on the level of the cash they collect. DotZot collects an average of about ₹1,800-2,000 from each delivery, and usually does not collect over ₹25,000. Delhivery collects an average of ₹800-1,000 cash for its e-commerce deliveries, though it once collected ₹4.5 lakh for delivering air tickets.

“We have different protocols depending on cash collections involved. For collections beyond ₹10,000, the standard field executive does not go and we usually ask for documents, such as the PAN card,” adds Barua.

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