Gift cards and store credit: how to set them up in your POS

Gift cards and store credit are two of the highest-leverage revenue tools in retail. Done right, they bring repeat visits, raise average ticket, recover refunds without losing the cash, and pay you upfront for sales you'll deliver later. Done wrong, they create accounting headaches, regulatory risk, and customer-trust failures that take years to repair.

This guide covers what every retailer needs to know to set them up cleanly in a POS — the operational mechanics, the accounting treatment, the regulatory considerations across MENA, and the patterns that distinguish a gift-card program that grows the business from one that just creates a liability on the balance sheet.

Gift cards vs. store credit: not the same thing

Both look like "money the customer can spend in your store later," but they behave differently and require different POS configuration.

Gift cards are bearer instruments. The customer (or anyone holding the card or code) can redeem them. They're typically prepaid: someone purchases a 200 SAR gift card, and your POS shows 200 SAR of revenue deferred until redemption. Gift cards sold to walk-in customers as gifts to others are the standard use case.

Store credit is account-bound. It's tied to a customer profile and can only be redeemed by that customer (verified by ID, phone number, or login). Store credit typically arises from refunds — instead of giving cash back, you issue equivalent store credit. It's less liquid for the customer but reduces fraud risk for you.

A POS should support both as distinct primitives, not collapse them into a single "credit" concept. The audit trail, the regulatory treatment, and the customer expectations differ.

Issuing gift cards: the workflow

The typical issuance flow:

1. Customer requests a gift card at the register, optionally specifying a denomination
2. Cashier rings up "Gift card 200 SAR" as a transaction
3. POS generates a unique card code (printed receipt, QR code, or physical card with a scratch-off PIN)
4. Customer pays for the card using a store-supported tender
5. POS records: revenue deferred 200 SAR, gift card liability +200 SAR, cash/card +200 SAR

The accounting note matters: the 200 SAR is not revenue yet. Revenue is recognized when the card is redeemed for goods or services. Until then, it's a liability — money you owe the customer in the form of future merchandise.

For physical cards, denominations are usually fixed (50, 100, 200, 500 SAR). For digital codes, any denomination is possible. Most modern retail POSes default to digital — cheaper, no inventory of blanks, no theft risk on the card stock.

Redeeming: the workflow

The redemption flow:

1. Customer brings goods to the register, scans/enters their gift card code
2. POS validates the code against the active gift card pool, shows remaining balance
3. Customer purchases items totaling some amount (e.g., 150 SAR)
4. POS deducts 150 SAR from the gift card balance, leaving 50 SAR
5. Transaction completes: revenue recognized 150 SAR, gift card liability -150 SAR

If the purchase exceeds the card balance, the customer pays the difference in another tender (cash, card). If the purchase is less than the balance, the remainder stays on the card.

The partial-redemption decision. Some merchants give cash back for unused gift card balances; most don't. A typical policy: balances over 50 SAR can be partially redeemed and remain on the card; balances under 50 SAR can be redeemed in a single transaction. Setting and clearly communicating this policy avoids customer-service friction.

Receipt-required redemption? Generally no — gift cards are bearer instruments. The card or code is sufficient. ID verification adds friction without preventing the legitimate use case (gifts).

Store credit: the issuance flow

Store credit typically arises from one of three triggers:

Returns processed as store credit. Customer returns merchandise; instead of cash back, the POS issues store credit equal to the refund amount. The customer's profile (or a unique receipt) carries the credit balance.

Goodwill credits. Manager issues a credit as compensation for a service issue (defective product, long delivery delay, complaint resolution). Logged with a reason code and the manager's PIN.

Promotional credits. Marketing campaigns issue credit to specific customer segments ("100 SAR credit for customers who shopped in March"). Typically time-limited.

Store credit is tracked per-customer in a way that gift cards typically aren't. The POS needs a customer profile lookup at redemption time, not just a code.

Expiry: the policy and the regulations

Whether gift cards expire and when they expire is a regulatory question, not just a business one. Across MENA the landscape is uneven:

Saudi Arabia. No specific gift card expiry regulation as of writing, but consumer protection rules require expiry terms to be disclosed at sale. Industry practice runs from 1–3 years; longer is more customer-friendly and increasingly the default for premium retail.

UAE. Federal Law on Consumer Protection (Federal Law No. 15 of 2020) requires clear terms; expiry must be disclosed. Common practice 1–2 years.

Bahrain, Oman, Qatar. Consumer protection laws require term disclosure. No specific gift card expiry rule.

Lebanon and Syria. Consumer protection frameworks are less codified for gift cards specifically. Standard commercial practice applies — disclose terms at issuance.

Practical recommendation. Set expiry at 24 months. Disclose at the point of sale (printed on receipt, on the gift card, in the digital delivery email). Send reminder notifications at 30 days and 7 days before expiry — both a customer-service courtesy and a legal best practice.

The accounting treatment of expired gift cards (called "breakage") matters too. When a card expires unredeemed, the liability becomes recognized revenue. Breakage rates vary by category; physical-card retailers typically see 5–10% breakage, digital often less.

Accounting treatment

Gift cards and store credit are liabilities until redeemed. The journal entries:

On issuance (cash gift card sale of 200 SAR):

• Cash / card +200 SAR
• Gift card liability +200 SAR (no revenue yet)

On redemption (customer buys 150 SAR of goods using the gift card):

• Gift card liability -150 SAR
• Revenue +150 SAR
• COGS / inventory adjustment as normal

On expiry / breakage (50 SAR remaining balance expires):

• Gift card liability -50 SAR
• Other income (breakage) +50 SAR

Your POS should produce a daily / monthly report showing:

• Total gift cards issued (count and amount)
• Total redeemed (count, amount)
• Outstanding liability (cards still active, total balance)
• Expired / breakage in the period

This report feeds your accountant's reconciliation. Without it, gift card liability silently grows on the balance sheet, eventually requiring a manual audit to clean up.

Multi-store gift card support

For retailers with multiple stores, the right default is: gift cards are redeemable at any store in the chain. This is what customers expect, and it's what the regulators assume.

The technical requirement: gift card balances must be centralized, not stored locally on each store's POS. When a customer redeems at Store A, Store B's POS sees the updated balance immediately. A POS that syncs gift card balances asynchronously (eventually consistent) creates fraud opportunities — a customer can race-redeem the same balance at two stores during the sync window.

This is one of the cases where offline mode needs careful handling. If a store loses network connectivity, redemptions during that window must be queued and reconciled when connectivity returns. Refusing redemption entirely when offline creates customer friction; allowing offline redemption without reconciliation creates fraud risk. The right design caches balances locally with a short TTL and resolves conflicts on reconnection.

Common gift-card fraud patterns

Gift cards are a fraud target because they're effectively cash. Watch for:

Card-balance probing. Attackers try sequential card codes hoping to find one with a balance. Counter: long, high-entropy card codes (12+ characters); rate-limit balance lookups by IP and account; lock cards after multiple failed lookups.

Refund-to-card laundering. Stolen-credit-card purchases are returned for store credit; the credit is then used or sold. Counter: store credit from refunds requires the original payment method to match the original purchase; manager approval for large refund-to-credit conversions.

Cashier-issued phantom cards. Cashier rings up a gift card sale, doesn't receive the cash, takes the card. Counter: pair gift card issuance to a tender record (cash, card, etc.); reconcile daily.

Reload abuse. If gift cards can be reloaded with additional balance, that becomes a money-laundering vector. Counter: cap reload amounts; require ID for high-value reloads; or simply don't support reloads on physical cards.

When gift cards make sense (and when they don't)

Gift cards work well for:

• Stores with a wide enough product mix that "anything in this store" is a meaningful gift
• Stores with strong brand affinity (premium, niche, destination)
• Seasonal gift contexts (Eid, weddings, graduations, year-end)
• Recovery situations (offer in lieu of cash refund for damaged goods)

Gift cards work poorly for:

• Stores with very narrow product mix (the gift becomes "a specific item")
• Stores with low repeat-purchase frequency
• Stores with very thin margins where breakage barely covers handling cost

For most retailers, the right strategy is: launch with digital cards only, watch redemption rates and breakage for 6 months, and decide whether to expand to physical cards based on actual data.

Authoritative sources

• Saudi Arabia Ministry of Commerce — consumer protection — disclosure requirements for prepaid instruments and gift terms.
• UAE Federal Authority for Consumer Protection — Law No. 15 of 2020 — consumer rights including disclosure of gift card terms.
• Visa / Mastercard prepaid card guidance — relevant if your gift cards are co-branded with a card scheme (most aren't, but worth checking before partnering with a fintech to issue them).
• IFRS 15 (Revenue from Contracts with Customers) — international accounting standard for revenue recognition on prepaid instruments. Local tax authorities follow IFRS for most of the GCC.

Frequently asked questions

Should I charge a fee for activating a gift card?

Activation fees are increasingly disliked by customers and frowned on by regulators. Most modern retailers have removed them. The exception: high-value cards (over 1,000 SAR) where a small admin fee covers the cost of fraud monitoring.

Can I sell gift cards online and have them redeemed in store?

Yes, and this is increasingly the standard pattern. Customer buys online → email delivery with code → in-store redemption. The POS just needs the code lookup to query the same central balance system the e-commerce checkout writes to.

What happens if a customer loses their gift card?

For physical cards: they don't get a replacement. The card is bearer and the policy should be disclosed at sale.

For digital codes: depends on whether the customer can prove ownership (purchase receipt, email confirmation). If yes, reissue with the same balance. If no, no replacement.

Should I offer cash back for unused gift card balances?

In most cases, no — it converts the card from a liability into immediate cash outflow without the offsetting revenue. Some jurisdictions require small-balance cash-out (typically under 10 SAR / 10 AED); check local consumer protection rules.

Are gift cards subject to VAT?

The sale of a gift card itself is generally not VAT-eligible — VAT applies when the goods are delivered (i.e., on redemption). This is the IFRS / OECD standard treatment and is followed across GCC. Your accounting must record the redemption as the VAT event, not the sale.

How do I handle gift card sales for accounting reconciliation?

The POS should treat gift card sales as a separate revenue category that doesn't flow into your standard sales reports. At redemption, the revenue moves into the proper category (e.g., "Apparel" or "Electronics"). This separation prevents double-counting and keeps your VAT calculation clean.

Our returns and refunds guide covers store-credit issuance from refunds. Our customer loyalty program guide covers the broader retention strategy that gift cards fit into.