How do I handle points liability?

Almost all currency-based loyalty programs carry a financial liability, which has a material impact on a brand’s balance sheet. A brand incurs liability for a future reward as soon as it issues the program’s currency (for example, points or miles) to a member. From an income statement perspective, there is a reduction in revenue as soon as the currency is issued to a member. The brand, therefore, cannot account for the full sale, since a percentage is remunerated in the form of a reward back to the member upon redemption.

Effectively managing loyalty program liability requires measured, strategic, interdepartmental cooperation between accounting, financial and marketing departments.