Gift cards have become an increasingly popular tool in the aesthetic industry. They provide a convenient way for customers to purchase and gift retail products, as well as medical and non-medical aesthetic services. For businesses, they represent an opportunity to increase sales and attract new clients. However, the implementation of gift cards requires a thorough understanding of both legal and accounting considerations to ensure compliance and financial accuracy. This article delves into the key aspects you need to be aware of before introducing gift cards to your aesthetic practice.
Expiration Dates
Gift cards are subject to specific regulations concerning expiration dates, both at the federal and state levels.
Under the federal Credit Card Accountability Responsibility and Disclosure Act of 2009, gift cards cannot expire for at least five years from the date of activation aiming to protect consumers from losing their funds due to expiration. Additionally, if an expiration date is imposed on a gift card, it must be clearly and conspicuously disclosed. This means using a readable font size, bold text, underlining, or different font colors to ensure the expiration date is easily noticeable by consumers. But you can’t just stop at the federal level.
State laws can offer even more robust consumer protections regarding gift card expiration dates. For instance, some states prohibit expiration dates for gift cards, ensuring that the gift card balance remains available indefinitely. Therefore, it is essential to know the specific regulations in your state to ensure compliance.
Redeeming Unused Balances for Cash
The rules regarding the redemption of unused gift card balances for cash vary by state.
In some states, consumers are allowed to redeem the remaining balance of a gift card for cash if it meets a certain minimum amount. This amount is typically nominal, ensuring that consumers can retrieve small leftover balances without difficulty.
Other states permit policies that prevent gift card holders from redeeming any unused balance for cash.
For practices offering prepaid medical services, additional considerations apply. State-specific regulations may address issues of unprofessional conduct related to patient billing and refunds for medical services not rendered. It is crucial to review these regulations to ensure that your practice’s policies comply with all relevant laws. These laws often come from the medical board of a particular state and affect the licensed supervising physician directly.
Escheat Laws
Depending on the state that you’re doing business in, you may be subject to its escheat laws. Escheat laws generally focus on the passing of a person’s interest in an asset or land to the state when they have no will, heirs, or devisees. Yet these same laws can further regulate unredeemed gift card balances, requiring you to report and remit unused gift card funds to the state. For example, some states require businesses to report unused gift card funds to the state only if there is an expiration date on the gift card, while other states mandate reporting of unused gift card funds even if there is no expiration date.
The length of time before businesses must report inactive gift cards and their unused balances also varies by state. It is essential to understand the specific requirements in your state to ensure compliance.
Accounting Perspective
Along with considerations from the legal compliance perspective, you should also consider implementation of gift cards from an accounting perspective. Jessica Nunn, CEO of Maven Financial Partners, provides valuable insights into the accounting considerations for managing gift cards in aesthetic practices:
Cash Basis
“Most aesthetics practices’ accounting is “cash basis”. This means they account for sales when they are paid for the sale. Practices that are cash basis should pay extra attention to outstanding gift card balances because, not only have they already received the funds, but they have already considered these funds income. Later, when the gift card is redeemed, the profit and loss will not reflect the income of the service rendered.
Accrual
Some aesthetics practices’ accounting is considered “accrual”. In accrual accounting, services are considered revenue not when they are paid for, but instead when the services are earned. For those practices, the sale of the gift card will not be considered income. The income is not reported on the P&L until the service is actually rendered. The sale of the gift card, at the time of sale, is reported as a liability (remember, a liability is something the practice owes someone or something…usually a bank loan, etc). In this case, the practice owes the person who has the gift card.
Either way you report it, cash basis or accrual basis, you must know your outstanding liabilities of gift cards. This information can (and should) be tracked in your practice management software. Keeping an eye on gift card balances will help practice owners manage the outstanding liability that eventually will be redeemed.”
Navigate Gift Card Implementation with Confidence
While gift cards present a lucrative opportunity for aesthetic practices, navigating the regulatory and financial landscape is essential to maximize their potential and avoid pitfalls. By staying informed and compliant, your practice can enjoy the benefits of offering gift cards while maintaining sound legal and financial practices.
ByrdAdatto Can Help You Navigate Gift Card Implementation
At ByrdAdatto, we specialize in guiding businesses through the intricate legal landscape of gift card implementation, ensuring full compliance every step of the way. Our legal team is dedicated to providing you with the essential tools and knowledge needed to seamlessly integrate gift cards into your business operations. If you are ready to explore the advantages of offering gift cards in your aesthetic practice, contact ByrdAdatto.
