The BizFilings blog covering business tips and trends.
Quick Cash Infusion: Gift Cards as a Financing Method
Published on Jul 11, 2012
Read 'Quick Cash Infusion: Gift Cards as a Financing Method' at 'Time to Start Up,' the small business blog by BizFilings.
For many small businesses, financing isn't so much a matter of landing venture capital investors or securing substantial bank loans. Rather, it's about managing cash flow and capital so that funds are available when money is needed.
Often, even a little bit of extra cash on hand can make a big difference in terms of operational efficiencies and peace of mind, and running a business smoothly day-to-day can be the first step to bigger growth down the line.
If you're in a situation where some extra cash is called for, there are two logical approaches: Get more money upfront from customers, or hold on to cash longer before paying vendors.
Renegotiating a payment schedule with vendors is often a straightforward proposition, especially if you've built a solid payment history. Getting paid upfront for services, either in part or full, is not uncommon in the professional services industry, but it might seem like retailers are out of luck on this front.
However, an article from SCORE, the government-run small business mentor program, suggested retailers can also get up-front cash, by selling gift cards.
Citing the Standard Register's National Consumer Retailer Survey of Plastic Card Usage, the SCORE article pointed out that 17 percent of gift cards are never redeemed, and 33 percent of total gift card value is never redeemed. In addition, 61 percent of gift card holders spend more than the card value when they use it.
So gift cards are a great way to get some cash in hand without depleting stock, and odds are good they will profit a company in the long-run, as well.