Holidays are upon us and you have come up with some great ideas to get a lot of gift cards sold/issued. That income without sales can offer a boost to your business and allow you to invest more into things you need to get done. It's also of course a great marketing advantage. Not only will customers buy cards for their friends, but you can also get them to buy cards for themselves. You do this with the discount concept, that the cards value is greater than the amount they paid.
Without pre-planning of this, you may have some vital liabilities that will cause you distress. These two liabilities are the state laws for redemption, and how you actually report and collect income for a gift card. If you don't understand these liabilities, you can loose thousands and not even know it.
Many states have a rule that if you have a gift card, it can be redeemed for the value of the card, or that the cash value of the card must be paid back on it. If you are issuing gift cards for $20 dollars, but charging $10.00 a smart yet jerky customer can come in and request 10 gift cards, and come back later in the day and ask for the cash value of them. You just lost $100.00 dollars.
So how do you avoid this issue? You will have to review the laws and required verbiage in your state. Most likely you will have to indicate the rules of redemption on the receipt, and the card itself. This means you will probably have to make cards specific for the promotion with their own rules printed on the card itself.
When you offer discounts for gift cards, you gain the promotion, but you loose in the income. This is obviously true. But what is not obvious is that when you issue a gift card for $10.00, and report $20.00 in sales, your liability is $20.00 so your your gross sales is $20.00 once that card is used. This means you are paying taxes on something you didn't even earn. You are paying more taxes than you should!
So when you offer a discount for the gift card, it's important to understand how to use your system to avoid that kind of problem. With CCS we recommend you use a percentage discount on orders, this way you can equivocate the discount as a percentage. You will most likely need to put a printed percentage discount on the card itself. Therefore, Issued value would $10.00 the card value itself would be $10.00, but for each purchase they would receive 10.00 off. In this instance, we would suggest you deny a split payment, however if you don't that still better than the alternative.
Most businesses know this by now, but not a lot of new business owners and quite often accountants and bookkeepers over look this problem.
Many bookkeepers look at the deposits as an income, or and many business owners do this as well. When you look at the total of cash/credit collected daily, that is not actual income. When you provide a gift card to a customer, that's called issuing, and it results in a liability, not a sale. So it's important that your system remove the issuance of gift cards from your gross sales report and that you understand your gross sales report properly.