Introduction
Gift cards are both a nice service for customers and valuable for your bookstore.
A gift card is a great way to give someone the exact book they want. For a shop there are significant financial benefits but there are also some important accounting and tax implications that need to be understood.
Why gift cards are financially valuable
• Firstly, the money is received in advance. Cash flow is very important for a business!
• A percentage of gift cards are never redeemed - this is known as ‘breakage’. It can vary widely depending on type of business, value of card and expiry date but typically is in the 2% - 4% range.
• Gift Cards have the potential to encourage new customers to your store.
Accounting and tax considerations
When you ‘sell’ a gift card, you’re not actually selling a product. It’s more like accepting a deposit that will be applied to a future purchase. You receive the cash and deposit it in your bank account, but it remains owed to the customer, so it must be recorded as a liability. This liability decreases when the gift card is redeemed.
Because some gift vouchers are never used, it’s important for gift cards to have expiry dates. If they do not, a liability will build up in the business that will reduce the value of the business. This becomes an issue if you go to sell your bookshop.
Accounting processes must also account for expiring gift vouchers. When vouchers expire, the unredeemed amounts must be recognised as income, contributing to your profits and subject to taxation.
Sales tax, where it exists, throws in another complication. When you ‘sell’ a gift card there is no sales tax (you have not actually sold anything yet). Sales tax is triggered when the gift card is redeemed or when it expires. For this reason you need to consider the cost of honouring an expired gift card as it could create a situation where you end up paying sales tax twice.
While this sounds complex, your POS and accounting systems will manage this for you. However, if you sell gift cards like any other product you will have accounting issues.
How the Gift Card feature works in Circle
Like everything in CirclePOS gift cards operate both instore and online. You can buy a gift card online and use it in-store and vice versa.
Online is particularly important as the need to buy a gift card for someone that is far away is common.
In store gift cards can be generated on the fly or pre-printed. The advantage of pre-printing is that you can create cards that are beautiful, and feel more like a gift; attractive for both the giver and receiver. Displaying your eye-catching gift cards on the counter will also likely increase sales.
You use the gift card batch generator to generate a batch of cards with numbers, pins and if you like, preloaded amounts. Preloading an amount allows you to print the dollar value on the card. Even if you do preset an amount, the card will not be activated until it is processed through the POS and paid for. The pin however is sensitive and should be covered with removable scratch film when printing. This avoids the situation where someone can copy unsold card numbers and pins to use later online (after they are sold/activated). The same goes for card batch files, these should be stored securely and destroyed after printing.
The alternative ( and easier) option is to generate gift cards on the fly in the POS when people ask for them. The card number and pin prints onto the receipt but you can make this approach more ‘gift-like’ by pre printing blanks that you fill out by hand with the card number, pin and amount.
You are also able to sell a gift card under a customer's name, this is recommended as it enables you to look up and resend the gift card at a later date if the customer loses it. 🙂
Once sold, the back office gift card console provides all the reporting you need. Opening balances, sales, redemptions, expiry dates etc that are important for accounting. In there you can also look up, view and export gift card histories and resend cards to people that have lost them.
Online gift cards can be purchased and redeemed like they can in store. Because the buyer is remote, the cards are generated as a PDF with your branding and emailed to the customer (or to the gift card recipient). Because many people buy gift cards for people that live in another town or city, selling gift cards online will significantly increase your sales and income.
Conclusion
Gift cards are a powerful tool for driving both immediate cash flow and long-term customer loyalty for your bookstore. They offer flexibility for customers while presenting financial benefits to your business, such as breakage and the potential to attract new patrons. With proper accounting and tax management, the complexities of handling liabilities and expired cards can be easily navigated. By leveraging the convenience of integrated systems like CirclePOS, both online and in-store, you can ensure seamless sales, enhance the gifting experience, and ultimately boost your store's revenue.
If you would like to know more, Contact Sales to see if CirclePOS can help you, or Book a demo to see under the hood
Useful additional references
How to think about loyalty and make best use of a loyalty programme
How bookstores can use loyalty in promotions