Returns, loyalty programs, promotions, or compensation are all valid scenarios for awarding store credit. Retailers and e-commerce business owners use store credit to support their brand, increase customer satisfaction, and encourage repeat business.
Below, we define the meaning of store credit and explore how to use store credit in your store to turn it into an effective game changer.
Store Credit Meaning and Example
Store credit is a form of credit offered by a seller that can only be used at their store. Let's say a customer attempts to return a $40 item, but it is outside the normal timeline for a return. The retailer can offer a $40 store credit instead of a cash return. This helps the customer feel like their dispute has been resolved while protecting the store from financial burden.
With store credit, you and your business benefit by:
- Encouraging repeat business – Clients have a reason to return to your store.
- Keeping money within the business – Actual funds stay within the store's system while still allowing customers the flexibility to purchase different items.
- Managing returns efficiently – Store credit simplifies the return process and reduces revenue loss.
Types of Store Credit
There are a variety of formats a retailer can use to offer store credit:
Returns and Exchanges
When a customer returns an item, the store can opt to give them store credit instead of cash. This is an especially helpful option if a customer attempts to return things after a long period of time or without a receipt.
Read More: How to Optimize Product Returns
Gift Cards
Gift cards are prepaid cards that act as store credit. These are convenient gift options that allow the recipient to choose to purchase their items. They also act as a marketing tool for companies by attracting new customers who receive the gift cards.
Loyalty Reward Programs
Customers earn store credit through loyalty reward programs based on their purchases or other incentives. These programs increase customer retention and promote repeat purchases.
Financing and Layaway
Specialized store credit like financing and layaway allows customers to make high-ticket purchases more easily. Financing allows you to buy now and pay later, while layaway allows customers to reserve a product by paying a portion of the price upfront.
Read More: How to Use Layaway
How Does Store Credit Work?
You can offer store credit via a variety of avenues and for many different reasons. The process generally follows the same format in each case:
1. Store Credit Issuance Scenarios
Store credit can be earned through various scenarios, each offering customers a way to receive value for future purchases. Here are some common situations in which you can choose to award store credit:
- Product Returns – If a refund is not available or if the customer prefers, you may offer store credit instead.
- Promotional Offers – You might offer "$10 store credit for every $50 spent" during a specific promotional period.
- Loyalty Programs – Customers can accumulate points with each purchase, and points can often be converted into store credit once a certain threshold is reached.
- Product or Service Issues – If a product is recalled or a customer has a negative experience, retailers may issue store credit as compensation.
- Trade-In Programs – Motivate your customers to exchange old or used items for store credit.
2. Conditions and Limitations
Store credit typically comes with specific conditions and limitations. For example, it may be non-transferable, meaning only the person who received the credit can use it. It can also often cannot be exchanged for cash and may have an expiration date, requiring customers to use it within a certain timeframe.
3. Tracking and Management
You should have systems to track store credit balances. This can be done through a physical card, an online account, or even linked to the customer's loyalty or membership program. Tracking ensures that both the customer and the retailer can easily check the remaining balance and any expiration dates.
4. Redemption Process
To use store credit, customers simply present the gift card or account information at the time of purchase. The value of the store credit is then applied to the total amount due, reducing or covering the cost of the new items.
If the purchase amount exceeds the store credit, the customer pays the difference. If the purchase amount is less than the store credit, the remaining balance is typically retained for future use.
Advantages and Disadvantages of Store Credits
Store credits are a powerful tool for retailers to attract and retain customers. They offer plenty of benefits, but they also have some drawbacks that should be considered.
Advantages of Store Credit
Store credit, if offered correctly, can be a win-win for both customers and retailers.
- Improves customer retention. Credit instead of cash refunds helps to build long-term relationships with customers.
- Encourages additional spending. Customers often spend more than their credit when making purchases.
- Retain revenue on returned goods. With store credit, the revenue stays within the business, reducing the financial impact of returns.
- Flexible return policies. Many retailers offer more lenient return policies when issuing store credit, which improves customer satisfaction.
- Attract new customers. Promotional credit or gift cards help you expand your customer base and increase brand exposure.
Disadvantages of Store Credit
Store credit needs to be offered wisely. If offered inappropriately, store credit could harm your brand.
- Potential customer dissatisfaction. Some customers prefer cash refunds. If they have had a bad experience with your store, a store credit can make them feel stuck.
- Limited usability. Store credit can only be used at the issuing retailer, which limits purchasing options for customers.
- Administrative costs. Systems need to be implemented and managed to make sure store credits are handled correctly.
- Accumulated liability. Unused store credits represent a liability until the credits are redeemed or expired.
- Risk of abuse. If not properly managed, retailers can open themselves up to risk via their store credit systems.
Understanding the pros and cons of store credit will help you make the right decisions for your stores.
How to Apply a Store Credit Program to Your Magento/Shopify Business?
Implementing a store credit program boosts your customer retention and streamlines your return processes. Whether you use Magento or Shopify, there are easy ways to add this feature to your store.
Magento Store Credit
If you're using Magento (Adobe Commerce), store credit is a built-in feature. Make sure your store is running the latest version of Magento. To issue a store credit, create a credit memo. Instead of refunding the customer's payment method, you can select "Apply as Store Credit." When the customer is logged in and shopping on your store, they will see "Use Store Credit" as a payment option with their available balance.
Advanced Store Credit Features in Magento
If you need more advanced control over store credit in Magento, consider using a third-party extension like our Store Credit and Refund for Magneto 2 plugin. This extension makes store credit easy to manage, allowing you to set custom email notifications and track customer balances.
Managing Gift Cards in Magento
Having a third-party plugin for managing gift cards in Magento makes life a lot easier. There are several options, but you can review two of the best gift card extensions for Magento to help you make the best decision for your store.
Shopify Store Credit
Like Magento, Shopify has built-in store credit functionality. To turn on this feature, go to Settings, then Customer Accounts. In the New Customer Accounts section, toggle Store Credit on.
Customers must be logged in to see their available credit. Shopify store managers can open a customer's profile and update the customer's balance in the Store Credit section.
Managing Gift Cards in Shopify
Gift cards are treated like products in Shopify. In the admin settings, open Products, then Gift Cards. From there, you'll be prompted to fill in the relevant data, such as title, description, and other product info.
Frequently asked questions
Store credit is a value given to the customer by a retailer that can only be used for future purchases at that retailer.
How you issue a store credit depends on your platform and the type of credit. For Magento and Shopify, you can use the built-in systems for credits and gift cards, or you can use third-party extensions to unlock more advanced features.
Yes, many types of store credits can expire to limit the liability of the retailer.
Yes, most store credit tools and platforms have dashboards to track issued and redeemed credits for each customer.
