Hello sellers!
It's the holiday season, which usually means we all do a push on gift card sales! I've seen questions about the cards in the community in the past, so I thought I'd post some best practices when it comes to gift card management!
Physical Gift Cards. Yeah, the physical gift cards get pricey quickly. But it's been my experience that they are worth it in the long run. Don't forget, you can reuse cards once they are empty! In 7 years I've only had to buy 750 cards, but I'm definitely moving them! I only toss the ones that aren't in good condition when they are redeemed. Personally, I believe that having the custom cards gives your business a little bit more legitimacy to the buying public, and I'm very happy with the quality of the cards I've purchased.
Accounting tip: if you do the custom design cards, figure out what the base cost is for your order. Put that amount in your accounting software as supplies, put the upcharge in as Advertising and Promotion. It doesn't soften the financial blow, but you can take the hit to your advertising budget for the month you've ordered the cards.
eGift Cards. Having the link on your online store is a great way to get additional gift card sales through the holiday season, but they're tougher for redemptions. Here's the trick I've found that works well. Once the recipient has claimed the card via the email, the card is linked to that person's name. If you link that person to the sale via the Add Customer link on the system, you can then use the Card on File option for checking them out. The eGift card will show up on the list of saved cards. No need for them to remember to pull up the email!
Gift Certificates. There's nothing wrong with paper gift certificates if you're not at a point to justify purchasing the cards! I recommend setting up a variable priced Gift Certificate item in your library. When they are redeemed, you can use the Other Gift Certificates payment type. If the certificate still has a balance on it, I recommend keeping a running balance on the back of the cert. Make sure you and your team is initializing the updated balance so you can ask questions if there are issues. Make the certificates attractive and print them on good card stock for longevity. There are some accounting issues that will need to be addressed this way though--I'll talk about that in a bit.
Pricing and Load Fees. Yeah, the gift card load fee is a pain point. I am not here to argue that. However, the last time I used a different provider for Gift Cards, they had the card creation fees, a load fee, a redemption fee, a balance check fee, and a monthly maintenance fee. While I would prefer not having any fees at all, Square needs to make money too. Keeping it to just the card purchase and a load fee is as good as it could be in my opinion. My hopes are that those fees will go to bettering the gift card product in general. And yes, you can put a minimum on the gift cards.
Gift Cards and Loyalty. Customers have the option of linking gift cards to their loyalty profile. Good while there's money on the card, bad when it comes to reusing the card. If you're going to reuse the cards, I recommend unlinking the customer from the card once the card is empty. To do this, on your web dashboard search your transactions for gift card redemptions. Open the transaction, then click on the customer name that's listed. On the customer screen that opens, scroll down to the Payments on File section. You can remove the gift card from that customer there. No name listed? Your customer hasn't linked the card to their account so there's nothing to worry about.
(Thanks @TCSlaguna for reminding me of this part!)
Accounting. This is the spot of gift cards that trips everyone up, including myself. The big thing to remember: gift card sales are not considered part of the sales of the day. When you sell a gift card, your gross sales for the day will not increase. You'll see Gift Card Sales as a separate line item on your reports. You do receive the payment via your usual transfer cycle, but you can't record it as a sale. When the card comes back in to be redeemed, that sale will count as sales for the day but no funds are transferred.
In your accounting software, you will need a liability item called Gift Cards. When a card is sold, you need to increase the Gift Card liability. When a card is redeemed, you need to decrease the Gift Card liability instead of recording a credit card payment. This is the safest way to ensure you're not showing double sales or overreporting your credit card sales for the day. If you're using paper Gift Certificates, you will also need to remove the GC Sold amount from your gross sales for the day to keep your books straight. Leaving the sale in your books will cause double sales to be reported.
The way to think of gift cards: your customer is basically giving you an advance for future purchases. You need to treat those funds as such. They are quite like a loan to your business. If the unthinkable happens and you have to close your business, you may be liable to return all those gift card funds. Best practice is to keep the gift card sales funds in a separate bank account and transfer it to your main bank account at time of redemption. However, I don't know of any small business that is able to do that!
I hope you sell lots of cards this season, and I hope that this advice helps you with the management of those sales!
Please note this is just advice from a fellow Square Seller. I recommend working with your accountant to configure your gift card program in a way that will cause you, your accountant, and your customers the least amount of pain.
