Should you consider gift cards and vouchers for your business?
A gift card is a card with a pre-paid amount of money on it that your customers can use instead of other payment methods such as credit card and cash. Some gift cards only work at a specific business or group of businesses. For example, a gift card from a shopping centre may only work at businesses within that shopping centre. Others work anywhere credit card is accepted.
How do gift cards and vouchers work?
Typically, a customer buys a gift card or voucher from your business or a third-party retailer. After a customer buys the gift card or voucher, it becomes redeemable for goods and services of a value up to the amount of money on it. Customers usually buy gift cards and vouchers to give as gifts to other people on occasions such as for Christmas and birthdays. Unless there’s an incentive, such as a discount, most customers don’t buy gift cards for themselves.
Your business may offer customers the ability to purchase gift cards or vouchers to encourage sales. The giving of gift cards and vouchers to friends and family by your existing customers may help bring in new customers and expand your customer base. It may also help retain your existing customers by increasing customer satisfaction and loyalty by offering gift cards or vouchers as a payment option.
The main benefit to your customers in offering gift cards is that it allows them to give an amount for the purchase of product or service from your business, enabling the gift recipient to personally select what they want to get with the amount.
Benefits of gift cards
As well as disadvantages, gift cards have several advantages over other forms of payment. Check out these examples:
No credit risk
Gift cards and vouchers are prepaid, so there is no risk that customers won’t pay their debts.
Preferred by some customers
Some customers may prefer it if you offer gift cards or vouchers. Gift cards can allow customers to pre-pay an amount that they can give as a gift to friends or family to give them the choice of the specific good or service they want from your business.
Useful for marketing activities
Gift cards can be useful promotional tools to encourage sales around gift giving occasions such as Christmas. You may also have gift cards linked to your customer loyalty programme. For example, you could distribute gift cards to your customers once they have reached a certain number of points on a loyalty programme.
Disadvantages of gift cards
Gift cards are similar to cash and have several disadvantages over other payment methods. Consider these examples:
Risk of customer dissatisfaction if lost, stolen or damaged
Since anyone can use them, gift cards have a high risk of loss or theft like cash. Some gift vouchers are paper based, so customers may damage them easily. Losing a gift card or voucher may also dissatisfy customers.
Customer dissatisfaction due to expiry date
A gift cards and voucher often has an expiry date. I t may dissatisfy customers if they are unable to use it before the expiry date.
No automatic proof of purchase
Gift cards don’t usually provide an automatic proof of purchase, which can create disputes.
Reliance on electrical and telecommunication infrastructure
Processing gift cards often requires an EFTPOS machine. EFTPOS machines require electricity, telephone or Internet access, so you can’t processing gift card or vouchers if required electrical or telecommunication infrastructure is down.
EFTPOS and computer systems for processing gift cards can malfunction.
Processing gift cards
Processing a gift cards and voucher varies depending whether you sell it directly to your customers or if it is from a third-party retailer. If your business plans to sell gift cards or vouchers directly, check out these example steps:
- Let your customer know you sell gift cards or vouchers.
- When a customer asks to purchase a gift card or voucher, let them know about any terms and restrictions that apply. There is a legal requirement that you must clearly state the terms and restrictions of any gift cards before you sell them. Read the Australian Consumer and Competition Commission’s Discount and gift vouchers page to learn more.
- When a customer buys a gift card or voucher, record receiving the money and an unearned income liability for the value of the goods or services you might have to supply if someone redeems the gift card.
- When someone redeems a gift card or voucher, lower the amount on it. If there is an amount still available on the card, return the card to the customer and tell them the balance. Provide them card or voucher holder with the goods or services they have requested.
- After you have supplied the goods or services, record sales revenue and reduce the unearned income liability by the value of the goods or services your business supplied.
- If you know that a gift card or voucher that you have sold has expired, you can write off the unearned revenue liability and record the amount that was on the gift card sale as income.
If a customer wants to use a third-party retailer’s gift card, try these steps:
- Let a customer know the total value of the goods or services they want to buy. If you display or advertise prices, it is an offence under the Australian Consumer Law if you supply your goods or services for more than the lowest advertised price. Read our Pricing and Pricing regulations pages to more about pricing.
- If your customer wants to use a gift card, process the sale using your EFTPOS machine. Read to our EFTPOS page to learn more about EFTPOS payments.
- Provide your customers with a receipt or a GST tax invoice if they request one. If GST applies, you have to provide a GST tax invoice within 28 days if your customer requests one.
Tips for using gift cards
Offer gift cards if your customers want them
Offering gift cards can increase your sales, help promote your brand and expand your customer base since customers may giving gift cards to family and friends.
Don’t ask customers to send gift cards through the mail
Gift cards are easy to steal. Use other payment methods such as cheque if customers need to pay through the mail.
Use gift cards as a promotional tool
Gift cards and vouchers can increase sales around gift giving occasions, such as Christmas and birthdays.
The content was first published on business.gov.au