Cash on Delivery (COD) vs. Delivery-Versus-Payment (DVP): What’s the Difference?

Cash on Delivery (COD) vs. Delivery-Versus-Payment (DVP): An Overview

Consumers and businesses have several ways to pay for goods and services. Cash on delivery (COD) and delivery-versus-payment (DVP) are two transactional systems they can use to fulfill their purchases. Both involve different procedures and timing of payments. COD describes a transaction in which the payment is made when a product or service is delivered. Delivery-versus-payment deals with securities in which the cash payment must be made before or during delivery.

Key Takeaways

• Goods or securities have different arrangements in place for the exchange of the item for payment.
• Cash on delivery stipulates that goods must be paid for at the time of delivery, or else the goods are returned to the seller.
• Delivery-versus-payment is an arrangement whereby securities are only delivered to the buyer once payment has been made.

Cash on Delivery (COD)

Cash on delivery is a transaction that requires the purchaser to pay for goods and services when they are delivered. Customers can pay for these deliveries using cash and checks in addition to electronic payments, which is why it’s also commonly referred to as collect on delivery.

COD is commonly used to pay for products and services ordered on television or the mail. It is also used as a payment method for food delivery, such as a pizza delivery from a local restaurant.

Accounting for CODs depends on the type of company providing the goods and services. For instance, public companies must use the accrual method as per generally accepted accounting principles (GAAP).

Goods are returned to the seller if the purchaser fails to pay for the goods upon delivery. Let’s assume a purchaser agrees to pay cash for electronics shipped from China. The buyer and seller sign a contract that stipulates the buyer makes the cash payment when the goods are delivered. If the buyer doesn’t pay, they are responsible for the shipping costs, and the goods are returned to the seller. Therefore, the buyer and seller agree to a COD transaction.

History

CODs are commonly used as a way for the average consumer to pay for goods and services when their orders arrive. The concept was first used in Switzerland in 1849 before being adopted in India and Australia. It wasn’t until 1913 that it was introduced in the United States.

Important

Goods are returned to the seller if the purchaser fails to pay for the goods upon delivery.

Delivery-Versus-Payment (DVP)

Delivery-versus-payment is a type of transaction that deals with the delivery of securities. DVP stipulates that securities are delivered to a specified recipient only when a payment is made. It is a settlement method to ensure the transfer of securities only occurs when payments are made.

Let’s assume an investor wishes to buy the stock of a company and agrees to the DVP settlement procedure. Therefore, the stock is only delivered if the investor pays the agent before or on receipt of the security.

The main goal of the DVP system is to help avoid certain risks, including:

• Liquidity risk
• Systemic risk
• Principal risk (the loss of the full value of the securities)
• Credit risk

Delivery-versus-payment is the settlement process from the buyer’s perspective. From the seller’s perspective, this settlement system is called receive-versus-payment (RVP). DVP/RVP requirements emerged in the aftermath of institutions being banned from paying money for securities before the securities were held in negotiable form.

History

The DVP system was first explored after the market experienced a drop in global equity prices in October 1987. Central banks of G10 countries have worked together to come up with a way to tighten settlement arrangements for corporate and government securities. During the December 1990 meeting of G10 nations, leaders identified the importance of the DVP system to help mitigate risks and increase liquidity in the global credit markets.

Note

DVP is also known as delivery against payment (DAP), delivery against cash (DAC), and cash on delivery.

Key Differences

When Did Delivery-Versus-Payment Become Popular?

The delivery-versus-payment system became a widespread industry practice in the aftermath of the October 1987 market crash.

What Are Some Common Examples of Cash on Delivery?

Cash on delivery is a payment method used by consumers who pay for goods and services when they are delivered. Some of the most common times when COD is used is for food delivery, certain online purchases, pharmacy deliveries, and orders between businesses.

What is Receive-Versus-Payment?

Receive-versus-payment is a settlement system that ensures payment is made before securities are delivered to the recipient. It is commonly used by large investors, such as banks, financial institutions, and mutual funds. The purchasers issues a transfer of funds into the seller’s account. Once the money is received, the securities are released and delivered to the buyer. RVP mitigates the risk that the delivering party (the seller) doesn’t get paid.

The Bottom Line

Cash on delivery and delivery-versus-payment are two common types of settlement systems used in the delivery of goods and services and for securities. COD is commonly used by consumers and businesses while DVP is used to settle investment transactions. In most cases, payment in both instances is made electronically, although cash and checks may still be used to pay for COD orders.