Why do gift cards have an expiry date?

If you are a person who loves to shop, then you must have come across gift cards. These cards are basically prepaid services that you can avail anytime you want. Well, not exactly anytime, because you must use it before it expires.

A lot of businesses offer gift card services. It is an easy and quick solution for presents. You can buy cards for as much credit as you like. To avail it, you can purchase anything from the designated shop – the options are limitless. It has become so common that people now prefer these cards over cash. It saves you from the hassle of choosing that perfect gift, and the receiver gets to buy whatever they like best.

These cards are indeed handy. But isn’t it too good to be true? If it is so straightforward, then how does it benefit the store? Well, here’s where expiry date plays its role. If a person forgets about his gift card or maybe misplaces it, he or she will never get to use it. And in turn, the store will keep the profit. But why does this expiry date exist in the first place, let’s discuss! 

Gift cards are put on the balance sheet of the company as a liability. They have a debt in order to provide a product or service at a future date. Many gift cards are never redeemed, but the company cannot know which cards are never going to be used. If they never expired then such debts would accrue over time into a large sum of debt which will never actually be called in.

Why is this problem? Because the value of a company is determined in part by considering their assets compared to their debt. If you have $100 million in assets but owe $120 million in debt, then your company isn’t really worth anything at all. So, building up excess gift card debt which can never be paid off is something to be avoided. 

That is why companies put expiry dates so that they can take off the unused cards from the liability section and put it in the revenue. Say if you bought a 250-dollar gift card for a friend, but she never used it, then the store will keep it in their liability until the expiry date. After that, they will include the amount as their profit. Good business, right?

Some people find the expiration dates annoying and useless. But if you think about it deeply, it is merely just business. A company cannot wait around forever for the customer to use their card. If they start doing that, almost every company with gift card services will go bankrupt.

If you are an entrepreneur yourself, you can try offering these cards. Not only do they grab a lot of customers, but it is proven that people usually spend more than their card’s amount. Thus, the business gets exposure, and the customer benefits from the service. All in all, it is a win-win situation for everyone.