A gift card is a convenient way for a customer to provide a gift to a friend, family member or business associate. They are most commonly used for gifts when you don’t know what to buy someone. Interestingly a survey done in 2017 by finder.com.au found that one in seven gift cards purchased in Australia went unused. This guide will look at why you should offer them, what are the rules you must abide by and how you go about offering them.
A gift card, gift certificate or gift voucher is a prepaid stored-value money card or certificate, usually issued by a retail store or bank, to be used as an alternative to cash for purchases within a store or related businesses.
WHY should I offer gift cards?
Gift cards offer several advantages for small businesses; the cost to provide them is minimal compared to their potential return. Consumers generally feel a gift card is an opportunity to spoil themselves.
Small Business Advantages include:
- Give customers an incentive to spend money at your business and create repeat purchases.
- Revenue is generated in advance sales as no goods or services are redeemed yet.
- Having customers carry a gift card around with your logo builds your brand.
- In most cases, customers will spend more than the gift card amount.
- Gift cards provide you with a promotional opportunity. Spend $100 and get a $10 gift card.
- Customers may never actually spend the value of the card, whether it be the last few dollars on a card or the whole amount.
WHAT are the Rules around gift cards or vouchers?
As of November 2019, the rules changed around gift cards. The rules now state that a gift card must have a minimum expiry date of 3 years from the date the card is sold. That expiry date must be listed on the card and no post-purchase fees can be added. A post-purchase fee would include activation, account keeping or balance enquiry fees. Penalties for non-compliance are $6,000 for an individual and $30,000 for a business.
When you sell a gift card/voucher, the customer has an asset of your business until the voucher is used. Thus, from an accounting perspective, when you record the sale of a gift voucher, it needs to be recorded as a liability posted to an Unclaimed Gift Certificate account. When the customer redeems the voucher, all you need to do is create an invoice and pay for it using the funds from the Unclaimed Gift Voucher account. This way, you can easily track the value of outstanding gift vouchers or write off any that remain unredeemed after the expiry date.
From a GST perspective, a gift card has a monetary value but does not need to be included in your GST activity statement until it is redeemed for products or services. The exception to this is when a gift card is not for money but rather a tangible product or service, then GST must be paid and reported on the voucher sale. For example, 10 hours of technical services.
If the voucher expires before it’s redeemed, you’ll need to report the unredeemed amount as income and 1/11th (being the GST component) is reported and paid to the ATO.
HOW do I offer gift cards?
The three most common forms of gift vouchers/cards are:
- A credit card-sized plastic card electronically loaded with a specific money amount. Note that some cards can have additional funds added or topped up later.
- A gift certificate is some form of a paper promise from a business allowing you to redeem the specified amount back from the store.
- eGift cards or vouchers. This is normally a set of codes and sometimes a barcode that you can receive via email. These codes/barcodes can then be applied at the checkout for credit.
As a small business, you should consider the following:
- Which type of cards you will offer as above?
- How do you tell customers they are available? Signs, internet, etc
- Will you restrict to set values or variables? Such as $50, $100 and $200?
- Will the expiry be 3 years or more?
- Can it be redeemed in your online store if you have one?
- If you have multiple stores using the same brand, is the gift voucher transferable?
- Integrating your POS and Accounting systems allows you to process and track these vouchers simply. (most have this functionality)
- Are there any special terms? Such as not allowing gift cards to be used to buy gift cards or transferable for cash.
Some plastic card solutions make it simple to activate and redeem cards by simply swiping the card through your EFTPOS reader. Other solutions will require some other type of solution, like keying in a number. Be wary of a manual system that can be lost or stolen.
You can brand your gift cards by having a custom gift card printed by various companies for less than $1 each. However, note some POS software solutions require you to use their gift cards which may cost more.
If you sell gift cards, make sure to showcase them in a highly visible place that customers must walk by. For example, placing gift cards next to the sales desk will lead to more impulse buys from customers.
SUMMARY – gift card solutions
Offering gift cards allow customers a convenient way to provide gifts to others. A small business benefits from having the money upfront and encouraging repeat visits to the store. Tracking and accounting is key to managing them with POS and accounting package companies offering solutions.