DDP and COD: Concepts and Differences

Key Summary
DDP (Delivered Duty Paid): A highly responsible trade term, where the seller bears all risks, responsibilities, and costs of delivering the goods to the buyer’s designated destination, including import customs clearance and payment of all taxes and duties.

COD (Cash on Delivery): A payment method where the buyer pays the purchase price immediately upon receipt of the goods, either in cash or by credit card.

The most fundamental difference: DDP defines the division of responsibilities and risks, while COD specifies the timing of payment. These are distinct concepts, and a single contract can include both DDP and COD payment methods.

DDP (Delivered Duty Paid) – Delivered Duty Paid

1. What is it?
   DDP is a term defined in the International Commercial Terms (Incoterms®). It clarifies the division of costs, risks, and responsibilities between the seller and the buyer in an international trade contract.
2. Key Features and Division of Responsibilities
   End of Responsibility: The seller’s responsibility ends when the goods are delivered to the buyer’s designated destination (e.g., the other party’s warehouse or store) and import customs clearance is completed.

The seller bears:

All transportation costs to deliver the goods to the destination.

All export and import customs clearance procedures (including document preparation, license application, etc.).

Payment of all export and import duties, VAT, and other taxes.

All risks associated with the goods prior to delivery to the designated destination.

The buyer bears:

Receiving the goods at the designated destination.

Unloading the goods from the means of transport (if unloading costs are not included in the contract, the buyer bears the risk and responsibility for unloading).

Applicable Transportation: Applicable to any mode of transport (sea, air, road, or multimodal transport).

3. Advantages and Risks
   For the buyer: Extremely convenient and minimal risk. The buyer can simply sit back and wait for delivery, just like shopping domestically, without having to worry about complex international transportation and customs clearance.

For the seller: Significant responsibility and risk. Sellers must be fully aware of the import regulations and tax policies of the destination country; otherwise, they risk losses due to customs clearance issues or unexpected costs. Therefore, only large, well-established, and experienced exporters typically use DDP.

COD (Cash on Delivery)

1. What is it?
   COD is a payment method, not a trade term. It means the buyer pays the delivery person upon receipt of the physical goods.
2. Key Features and Process
   Payment Time: Payment occurs upon delivery.

Payment Form: Typically cash, but modern logistics also support POS and mobile payments.

Common Application Scenarios:

Domestic e-commerce: Very common, especially for consumers who are unsure of online payments or lack access to electronic payment methods.

Cross-border e-commerce: Also common in certain markets (such as some Southeast Asian countries) where electronic payment penetration is low.

Traditional distance sales models such as mail order and telephone shopping.

The Role of the Logistics Provider: Logistics companies (such as postal and courier companies) act as “collection agents” and then settle the payment with the seller. Therefore, they typically charge an additional “collection agent” service fee.

3. Advantages and Risks
   For Buyers: Increases purchasing confidence and avoids the risk of not receiving goods after payment.

For Sellers:

Advantages: Can attract customers who are hesitant about prepayment, boosting sales.

Risks: High risk of rejection. Buyers may change their minds and refuse to accept the goods, leaving the seller with the responsibility for round-trip shipping costs and the risk of damage. This can also result in slow capital recovery.

Key Analysis: DDP vs. COD
Characteristics: DDP (Delivery Duty Paid) vs. COD (Cash on Delivery)
Essence: Trade terms (defines the division of risks, responsibilities, and costs) Payment method (defines the timing of payment)
Core Content: “Who is responsible for transportation and customs clearance?” “When is payment due?”
Governing Rules: The International Chamber of Commerce’s Incoterms®. There are no internationally standardized rules; instead, they are governed by contractual agreements and industry practices.
Main Risk Bearers: Seller (bears the entire transportation and customs clearance risk) Seller (bears the buyer’s risk of rejection and fund recovery)
Cost Focus: Freight, customs duties, VAT, customs clearance fees, etc. Payment, collection fees, and potential return shipping costs
Interrelationships: A DDP contract can be combined with a COD payment method (i.e., the buyer pays the delivery driver after the goods arrive at the destination). A COD order may be based on DDP terms (the seller pays the delivery driver after shipping and tax), or other terms.
Example: Suppose a Chinese company sells a product to a German individual.

Scenario 1: Using DDP

The Chinese company (seller) is responsible for finding a freight forwarder, arranging air freight, handling export declarations in China and import clearance in Germany, and paying all shipping costs and German import VAT.

The goods are then delivered to the German consumer’s doorstep by a courier.

Regarding payment: The consumer may pay online with a credit card when placing the order (prepayment) or pay cash upon delivery (COD). Both DDP and COD exist in this scenario.

Scenario 2: Not using DDP (e.g., using DAP)

The Chinese company (seller) is only responsible for shipping the goods to the designated destination in Germany (e.g., airport customs), but is not responsible for import customs clearance or paying taxes.

The courier will contact the German consumer to inform them that a package requires a €50 payment of duties and customs clearance before delivery.

If the consumer pays this amount, they receive the goods. This is not DDP, as taxes and fees are paid by the buyer.

Payment can also be paid online in advance or cash on delivery (COD).

Summary
In short:

When discussing who is responsible for shipping, customs clearance, and taxes, use trade terms such as DDP.

When discussing whether to pay upon order placement or upon receipt, use payment methods such as COD.

When choosing between DDP and COD, sellers should comprehensively assess their risk tolerance, familiarity with the destination country’s policies, and the buyer’s creditworthiness to decide whether to use DDP or accept COD. For buyers, DDP is the least stressful method, while COD is one of the most secure payment methods.