E-commerce industry is booming in India at breakneck pace. A recent research done by Forrester says that the Indian e-commerce industry will be more than five times its current size by 2016. That is a growth pace to be reckoned with.

Every second week we are seeing one or the other e-commerce companies popping up. But the industry is not without issues. It was only recently that the e-commerce shop Taggle.com shut its shop down; the company had acquired millions of dollars in funding and still found it impossible to run a self sustaining business in the space. This points to the fact that, ‘all is not well’ with the Indian e-commerce space. There are several issues that are threatening and crippling the industry, a significant example being Cash on Delivery (COD).

Even though COD is a relatively new model in the Indian market, this is hardly the case in West. It had gone obsolete a while back in the West. Since consumers there, are very comfortable purchasing via credit or debit cards and internet market, there was little need for COD. Apart from businesses like food courts not many businesses in the west still sport the model. But in a market like India where people do not have necessary trust to use cards online, this model makes much sense. And this reflects in the response that the e-commerce companies have received ever since.

While the western markets see about 80 percent of its whole transactions happening via online channels this percentage is in its 20s in Indian market. About 80 percent of all e-commerce transactions in the country are now in COD. Not just that, the model has increased the number of sales per month by very large percentages for every company which feature it. But this is not a number that the companies are proud of; in fact this booming COD affinity is vitally eroding profit margins of the e-commerce companies.

A major problem being the fact that not all courier companies are offering COD model and the ones that are offering the model is charging significantly. Courier companies are charging a huge amount for COD model. What makes this significantly worse is the fact that companies are facing up to 45 percent of rejection in COD model. Since the customers who order the products do not have to pay the cost up front they do not consider seriously before placing the order and hence the high rejection rate. This rejection rate put an even higher burden on the e-commerce companies since they will have to pay the return courier charge too, and such end up paying twice the courier charge for a product that they never sold.

To put it simply, companies are spending courier charge plus COD charge plus return charge on a single product. This is eating into the working capital of the companies. Also there is a delay in receiving the payment of the product. Once the courier companies receive the payment they deliver it to the e-commerce companies on a fortnightly basis and hence the companies are put in an awkward position where a large portion of their working capital is in lockdown. These delays in revenue are seriously harming the e-commerce companies. Also the chances of fraud to be committed by cash collecting agents are higher since the supply chain is far more complicated than it is in normal model.

The ever increasing demand for COD means e-commerce companies cannot afford to stay away from it, yet it is not a sustainable business model for them to sport. The companies have to come in some sort of terms with their courier partners to make COD the proper tool that it can be. Without this, the model will remain to be a major flaw that will ultimately, fatally disable the industry.