In the wake of Coronavirus, I am completely overwhelmed by how much everyone wants to help local businesses thrive. As a gift card professional, I have seen more headlines encouraging people to get out and buy a gift card than I ever have before. But, I want to put out a word of caution- yes please, GO BUY GIFT CARDS, but you have to understand that if you never redeem that gift card, you may make the company you are trying to support LOSE that money down the road.
How is this possible? Well, it comes down to unclaimed property laws. Gift cards are essentially a promise of goods or services. The holder of a gift card technically owns the gift card; not the merchant you bought it from. So if you never come in and spend the money you loaded on the gift card, it becomes unclaimed property. “States generally require the value of the abandoned assets—uncashed checks, dormant savings accounts, and unused gift cards—to escheat, or be handed over to the state.” Said Michael J. Bologna in his 2019 Bloomberg article. Depending upon the state the merchant is incorporated in, or where you, the holder of the gift card lives, after a certain amount of years the merchant will have to remit the value remaining on the gift card to the government as unclaimed property.
Gift cards are not realized as revenue for a merchant until they are redeemed. I know that seems counter-intuitive, but gift cards are essentially a promise of goods or services. Until you come back and call in that promise, the balance of the gift card has to sit as a liability on their books. It may offer some short term cash flow, but you don’t want to create a problem for them further downstream.
So how can you help a small business in your community right now?
- If you have a gift card that can be redeemed, redeem it now for something you can buy online etc.
- If you buy a gift card now, make sure you know where the gift card is, or store it in a digital wallet, and set a reminder for a month from now to go redeem the gift card.
- Join the newsletter and follow the merchant on social media. Their communications will let you know when they are open again, and you can redeem a gift card or show them some love right away
It feels like a time when we are all trying to figure out what we can do to make the world a better place. Gift cards can be a great way to do this for the small businesses in your neighborhood. Small business bring a vibrancy and life to our neighborhoods and towns that are critical to our day to day lives. We cannot let them fail!