Cash on delivery and delivery versus payment describe different procedures and timing of payments. Cash on delivery describes a transaction in which the payment of a good or service is made when the good or service is delivered. Delivery versus payment is a type of transaction that deals with securities in which the cash payment must be made before or during delivery.
Cash on Delivery
Cash on delivery generally deals with goods, and the transaction stipulates that the purchaser must pay for the goods when they are delivered. If the purchaser fails to pay for the goods upon delivery, the goods are returned to the seller.
For example, assume a purchaser agrees to make a cash payment for electronic devices that are being shipped from China. The buyer and seller sign a shipping contract, which stipulates the buyer make the cash payment when the goods are delivered. However, if the buyer fails to make the payment, he is responsible for all shipping costs and the goods are returned to the seller. Therefore, the buyer and seller agree to a cash on delivery transaction.
Delivery Versus Payment
Conversely, delivery versus payment, also known as delivery against payment, is a type of transaction that deals with securities. This transaction stipulates that securities are delivered to a specified recipient only when a payment is made. It is a settlement method to ensure transfer of securities only occurs when payments are made.
For example, assume an investor wishes to buy stock of a company and agrees to a delivery versus payment settlement procedure. Therefore, the stock is only delivered if the investor pays the agent before or on receipt of the security.