COD Dropshipping: How It Works + 5 Steps to Launch on Shopify (2025 Guide)

COD Dropshipping: How It Works + 5 Steps to Launch on Shopify (2025 Guide)

Cash on Delivery (COD) remains a central payment method in many ecommerce markets. For Shopify dropshippers, it is one of the few models where an unknown brand can generate conversions from day one, as long as the operational chain behind it is structured correctly.


This guide explains how COD dropshipping works end-to-end, including the logistics, verification, courier flows, and the financial mechanisms that affect profitability. It then walks through 5 practical steps to launch a COD dropshipping operation on Shopify, based on data from COD-heavy regions across India, Pakistan, Colombia, MENA, and Southeast Asia.

The goal is not to promote software, but to document the actual operational process behind COD, show what new merchants can realistically expect, and provide region-specific details that are not available in typical tutorials.



Why COD Still Matters for Dropshippers

COD continues to dominate ecommerce in many regions because of structural factors, not convenience:


1. Trust in online payments varies significantly

In many Tier 2/3 cities in India, Pakistan, and parts of LATAM, customers avoid card payments because:

  • online card fraud is perceived as high
  • low banking penetration limits prepaid adoption
  • failed payment attempts are common on older devices
  • consumers are more comfortable paying cash after inspection

2. Cash is still widely circulated

Many households across South Asia and LATAM rely primarily on:

  • ATM withdrawals
  • cash wages
  • informal financial networks

COD allows them to participate in ecommerce without needing digital wallets.


3. Delivery density and last-mile precision vary


In regions where addresses are inconsistent or incomplete:

  • drivers rely on customer calls
  • cash-based delivery models continue to persist


4. COD increases conversion for unknown brands


A new Shopify dropshipping store with limited credibility can still convert orders when customers have the option to pay on delivery.


How COD Dropshipping Actually Works


COD is not a payment method in the traditional sense. It is a logistics-driven payment chain that affects cash flow, verification processes, and operational cost.


Here is the full real-world flow.


1. The customer submits a COD order

At checkout, the customer selects a COD option.

This generates an unpaid order in Shopify.

No funds are collected at this stage.


Operational implication: You cannot assume the order is real until verified.


2. The order is passed to the supplier and courier

Dropshippers either:

  • manually create a shipping label with a courier, or
  • rely on a supplier who handles shipping directly.

Couriers operate with different rules around:

  • coverage
  • COD acceptance
  • remittance timing
  • delivery attempt limits

A courier mismatch leads directly to higher RTO.


3. Delivery attempt

The courier attempts delivery. Three outcomes are possible:

A) Delivered and paid

The customer accepts the parcel and pays the full amount in cash or approved local method.


B) Refusal or “change of mind”


Customer rejects the order, resulting in a full return cost.

C) Failed attempt due to address or contact issues

  • incorrect address
  • no answer
  • unreachable phone
  • customer not home


In COD markets, failed attempts are common:




Every failed attempt increases the chance of RTO.


4. Courier remits cash to merchant


Cash collection is followed by a settlement period where couriers batch payments.


Typical remittance cycles:




This is the main reason COD requires strict working-capital discipline.


5. Reconciliation

The merchant must:

  • check delivered orders
  • check cash collected
  • compare courier reports
  • reconcile payouts vs. expected values
  • track pending remittances
  • identify missing or delayed payouts

This reconciliation cycle is not optional.

It is the operational backbone of COD.



Step 1: Pick the Right Market (Deep Research)


Successful COD dropshipping starts with correct market selection. COD behaves differently by geography due to cultural, regulatory, and operational factors.



Indicators of a COD-friendly country


A strong COD market has:

  • high COD share (>40% of ecommerce orders)
  • established courier networks
  • cash-handling capability
  • predictable remittance
  • phone-first customer behavior
  • strong WhatsApp penetration


Markets where COD works well for new Shopify dropshippers

India

  • High COD adoption (>60%)
  • Strong aggregator ecosystem
  • High RTO risk if unverified


Pakistan

  • COD dominant (>85%)
  • RTO risk moderate-high
  • Mandatory phone confirmation recommended


Colombia

  • COD common in metro + regional cities
  • Remittance slower (14–21 days)
  • Address precision is critical (“barrio” field)


UAE + Saudi Arabia

  • Lower COD share but reliable couriers
  • Strong delivery SLAs
  • Low RTO compared to South Asia


Why starting with 1–2 regions is essential


Each country requires:

  • different address fields
  • different language formats
  • different courier preferences
  • different verification steps


Trying to launch in multiple countries at once leads to operational breakdown.


Step 2: Configure Shopify for COD Correctly


COD requires custom checkout structure and verification logic.



1. Data capture


Your checkout must collect:

  • correct phone number
  • detailed address
  • optional fields depending on region
    • India: “Landmark”
    • Colombia: “Barrio / Localidad”
    • Pakistan: “Area / Block”

Missing data is the #1 driver of RTO.



2. COD verification


Before shipping, verify:

  • customer intent
  • address accuracy
  • reachable phone number


Verification methods:

  • WhatsApp confirmation
  • SMS OTP
  • call verification for high-risk orders


Verified orders reduce RTO by 20–40%.



3. COD Fee (optional)


A COD handling fee is common in India, Pakistan, and LATAM.

Purpose:

  • discourage low-value orders
  • offset RTO risk
  • encourage prepaid conversion


4. Hold-until-verified


Automate rules so that:

  • COD orders enter “pending verification”
  • confirmed orders move to “ready to ship”
  • unresponsive orders are automatically cancelled


This prevents premature shipping.


Step 3: Build the COD Operations Loop


This loop determines the merchant’s success more than product choice.


A functioning COD store follows this 4-stage loop:


Stage 1: Verification


Before dispatch:

  • WhatsApp confirmation
  • OTP verification
  • language-adjusted message templates


Target metric: 70–90% verification rate


Stage 2: Delivery


During delivery:

  • day-of-delivery SMS
  • multi-language messages
  • clear instructions


Target metric: 80%+ first-attempt success


Stage 3: Settlement


After delivery:

  • track remittance cycles
  • compare courier reports
  • identify delayed settlements


Target metric: <10% discrepancy between delivered vs. settled


Stage 4: RTO Management


Monitor:

  • refused deliveries
  • unreachable customers
  • address errors
  • courier delays


Reduce RTO through:

  • address validation
  • region-based courier assignment
  • COD fees for low-value orders
  • balanced risk rules


Read next: Unit Economics & Pricing



Step 4: Scale Intelligently


Scaling prematurely increases RTO and reduces cash flow. Scale only after one region is stable.


1. Localization


Adapt:

  • checkout labels
  • SMS/WhatsApp templates
  • language (Spanish for LATAM, Arabic for MENA, Urdu/Hindi for Pakistan/India)


2. COD-safe AOV strategies


Upsells must be:

  • simple to understand
  • cash-friendly
  • aligned with delivery risk


Examples:

  • quantity offers
  • bundles
  • free delivery thresholds
  • post-purchase COD upsells


3. Fraud rules


Monitor:

  • repeat phone numbers
  • VPN-based traffic
  • high-risk regions
  • disposable emails


Introduce:

  • OTP for suspicious orders
  • blocklists
  • whitelisting for returning customers


4. Courier evaluation

Evaluate per quarter:

  • delivery metrics
  • RTO handling
  • remittance speed
  • service quality


This is essential because courier performance changes over time.


Step 5: Expand Beyond One Market


Once your first region is stable, add one new region only after:

  • RTO < 25%
  • verification > 70%
  • remittance cycle predictable
  • reconciliation tracked weekly


Why this matters


COD is operationally intensive. Adding a second region doubles complexity:

  • different couriers
  • different address formats
  • different languages
  • different fraud signals


Growing slowly ensures long-term stability.




Releasit’s Role in the COD Ecosystem


Releasit develops COD infrastructure for Shopify stores & supports COD dropshippers with:

1. Checkout Extensions

  • accurate address capture
  • phone validation
  • regional field prompts

2. Verification Tools

  • WhatsApp confirmations
  • OTP verification
  • hold-until-confirmed workflows

3. Operational Automation

  • tagging rules
  • courier routing
  • follow-up reminders

4. Analytics

  • RTO tracking
  • AOV tracking
  • remittance insights


Releasit does not replace couriers or suppliers. It enables them to operate with fewer errors and more predictable results.



Install Releasit COD Apps for Shopify


Related Reading

  • Market Selection & Country Playbooks

  • Courier & Aggregator Strategy

  • Unit Economics & Pricing


FAQs

Q1. Which countries perform best for COD dropshipping?

 India, Colombia, and MENA markets combine volume with stable remittance systems.

Q2. Do I need local registration to accept COD?

 Not always! Many aggregators manage cross-border settlement for Shopify sellers.

Q3. How soon are payouts made?

 Between 5-21 days, depending on the region and the courier agreement.

Q4. How do I reduce fake orders?

By verifying customer intent before dispatch using WhatsApp or OTP.