The verdict in three sentences
Cash on delivery (COD) lowers friction at purchase but is expensive: 15 to 30% returns, cash handling and failed deliveries. Prepaid mobile money drops returns to 3-7% and secures cash flow, at the price of needing more trust. Over 500 orders, the margin gap often exceeds 1,000,000 FCFA in favour of prepaid.
Where the money goes: the real cost of COD
COD looks free to the customer but stacks hidden costs on the merchant side: failed deliveries, refused parcels, cash to collect and repatriate, cash-flow delay. Here are 2026 ballpark figures (estimate).
| Cost item | COD | Prepaid mobile money |
|---|---|---|
| Return rate | 15-30% | 3-7% |
| Payment fee | 0% at order | 1-2% |
| Failed-delivery cost | high (2nd pass) | low |
| Cash handling | 1-2% | 0% |
| Collection delay | 3-10 days | immediate |
| Default risk | medium-high | near zero |
Returns are the dominant item: each returned parcel stacks outbound cost, return cost and stock tied up.
Cost/risk table by mode
To arbitrate, score each mode on the criteria that weigh on margin and operations.
| Criterion | COD | Prepaid | Hybrid (deposit) |
|---|---|---|---|
| Purchase friction | low | medium | medium |
| Return rate | high | low | low |
| Cash flow | slow | immediate | fast |
| Operating cost | high | low | medium |
| Trust required | low | high | medium |
| Net margin | reduced | preserved | in between |
The hybrid (small mobile-money deposit then balance on delivery) is often the best compromise: it filters out fake buyers while keeping friction low.
Mini case study
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Fatou sells ready-to-wear in Dakar: 500 orders a month, 20,000 FCFA average basket, 40% gross margin, i.e. 8,000 FCFA margin per order. On COD with 25% returns, she loses the margin and pays 3,000 FCFA of logistics per returned parcel: on 125 returns, that is 1,000,000 + 375,000 = 1,375,000 FCFA of monthly loss. On prepaid at 5% returns (25 parcels), the loss falls to 200,000 + 75,000 = 275,000 FCFA. The gap exceeds 1,100,000 FCFA per month in favour of prepaid, even after 1.5% payment fees.
FAQ
Is COD really free?
No: it has no payment fee at order, but returns, failed deliveries and cash handling often cost 3 to 6% of revenue, plus the cash-flow delay.
How do I reduce COD returns?
A mobile-money deposit, a call or WhatsApp confirmation and address scoring cut the 15-30% returns sharply. That is the principle of the hybrid model.
Does prepaid scare off wary customers?
On first purchases, yes, a little. A clear receipt, reviews and a reassuring return policy offset it, and hybrid offers a smooth transition.
Which mode should I choose at launch?
Start hybrid: a small prepaid deposit to filter non-serious orders, balance on delivery to keep trust. Shift to full prepaid as your reputation builds.
Let's talk about your project. We calibrate your COD/prepaid/hybrid mix and wire the mobile-money deposit to protect your margin. WhatsApp +221 77 596 93 33.
Mohamed Bah
Fondateur, Kolonell
Passionate about digital and entrepreneurship in Africa, Mohamed has been helping Sénégalese businesses with their digital transformation since 2020. Founder of Kolonell, he believes every SME deserves a professional and accessible online présence.
