Store Credit and Loyalty Points: What You Issue Is a Liability, What Comes Back Is a Repurchase

Points and store credit are probably the most underestimated item on an e-commerce feature list: "It's just a few percent back on purchases, redeemed at checkout, right?" Then you actually launch, and the questions start arriving: should issued points be booked as a liability? Should points be clawed back on returned orders? How do you notify people about expiring points? Finance asks, "how much are the points currently circulating out there actually worth?" — and you have no answer.

We run our own brand e-commerce store and have built a points system from scratch. This article covers three things: the math of earn rates, the design of expiry, and the most-ignored part — accounting and systems.

First, face the nature of it: points are money you owe your customers

Every point you issue that redeems for NT$1 is NT$1 of additional debt to that customer. This isn't a metaphor — in accounting terms, unused points are a deferred obligation, and at scale may need to be recognized as a liability (ask your accountant; treatment varies by company). Once you accept this, many design decisions clarify themselves:

• Derive the earn rate from your gross margin — don't copy competitors. 5% back sounds modest, but if your margin structure is already tight, that 5% comes straight out of net profit. The sane calculation: estimate the actual redemption rate (it won't be 100%, but don't bet on it being low either), multiply by the earn rate, get "real reward cost per NT$100 of revenue," and check whether your margin can absorb it.
• Issue with intent. Undifferentiated sitewide cashback is the most expensive approach. Use points as behavioral incentives — first-purchase gifts, repurchase boosts, review rewards, birthday points — so every issuance maps to a behavior you actually want. The cost-effectiveness is completely different.

Expiry design: the expiry date is your best repurchase alarm clock

Points that never expire are a financial black hole: the liability only grows, and with zero urgency, customers don't even use them. Battle-tested advice on expiry:

1. Set expiry between one and two repurchase cycles. Selling consumables with a two-to-three-month repurchase cycle? Six-month expiry is reasonable. Selling low-frequency goods? Stretch to a year. Too short feels like a scam; too long has no tension.
2. Always notify before expiry — more than once. Our experience: remind at 30 days and again at 7 days. The open and conversion rates of "you have NT$X in store credit about to expire" emails consistently beat almost all promotional content — because it's the customer's "own money," and loss aversion is one of the strongest levers in human nature.
3. Deduct first-in, first-out. When redeeming, the system must draw from the earliest-expiring batch first — which means points must be ledgered as "batch + expiry," not a single total field. This is the most common piece of technical debt in points systems: get it wrong at the start and it's nearly impossible to fix later.

The devil in the systems: every point needs a ledger entry

A points system is, at heart, a small bookkeeping system. Every increase and decrease needs a ledger line: when, why (purchase reward / campaign issuance / redemption / return clawback / expiry), and against which order. Only at that level of rigor can you answer the operational must-ask questions — "total points in circulation," "how much expired this month," "what's the redemption rate." Non-negotiable safeguards:

• Claw back points on returns. When an order paid partly with points is refunded, return the redeemed points and claw back the points earned on that purchase. Miss either side and you've built a reusable exploit.
• Cap redemption per order. Set a maximum share of any single order payable in points (commonly 10–30%), or you'll see waves of near-zero-value orders where payment fees and shipping costs put you underwater.
• Keep points and gamification currency separate. Our rule: redeemable store credit is one ledger; XP earned from missions and check-ins is another, and the latter can never convert to money. Mix them and every gamification giveaway becomes a financial liability, shackling your campaign design.

The moment a point is issued, it's a liability. The moment it's redeemed, it becomes a repurchase. The entire purpose of the design is to make that conversion fast and frequent.

If your points currently live in Excel or a shopping platform's bare-bones field, get the ledger structure right before you scale — and plan it alongside membership tiers for compounding effect. This points ledger engine is also a common module in our e-commerce development services; happy to compare notes.