What Is Store Credit? How To Use It To Sell More (2025)

Returns have long challenged retail businesses. You've sold a product to a customer, but they later return to your store asking for a refund. The item lands back on your shelf and the money exits your bank account.

What if there was a better way to handle returns—one that aligns with a unified commerce strategy while increasing sales, keeping money within your business, and improving customer loyalty?

Store credit is a powerful tool in your unified commerce toolkit that provides value to customers while encouraging them to spend more with your brand. By offering store credit instead of traditional cash refunds, you create a seamless experience that bridges online and in-store shopping journeys, prevents revenue loss, and builds lasting customer relationships.

This guide shares how to leverage store credit as part of your unified commerce strategy to increase customer retention and drive business growth.

What is store credit?

Store credit is money that customers can only spend at one specific store. When you return something, businesses often give customers store credit instead of real cash.

• The amount usually equals what you last paid for the returned item
• Customers can use this credit to buy other things from the same store
• Customers cannot use it at different stores, it only works where it was issued

Store credit is mostly good for your business. It keeps money in your store that would be gone forever with cash refunds. It also makes customers visit you again. 

The downside is that some customers prefer cash back. To keep customers happy, make sure your store credit rules are clear and easy to understand.

How does store credit work?

Retailers give store credit as money that customers can use later in their store. This money can't be used at other stores or brands. 

It's not the same as a sale or discount. Instead, customers get something like a gift card or store credit card that's just for them, and usually doesn't expire.

Returns and exchanges

When a customer returns an item, the store can offer store credit instead of a cash refund. This keeps the value within your business while still compensating customers for their return.

Customer retention

Store credit encourages customers to return and shop again, fostering loyalty and repeat business. Since the credit can only be used at your store, it guarantees a future visit from the customer.

Incentivized spending

Store credit provides a flexible option for customers who want to make future purchases without needing to immediately spend the full amount. Credits can typically be used across multiple transactions until the balance is depleted.

Flexibility

Store credit keeps money within the business, potentially boosting future sales and improving cash flow management compared to issuing cash refunds.

Benefits of issuing store credit

There’s a reason the world’s most successful retailers all use store credit: it offers flexibility and is a way to inspire customer spending and loyalty.

Here are the three main benefits of offering store credit in place of cash refunds.

Improve customer retention and loyalty

Store credit offers customers an additional incentive (on top of great products and customer experience) to come back to your shop. As one facet of a robust POS loyalty program, store credit gives you yet another tool to showcase to customers what their repeated business means to you.

William McGrath, CEO of Classy Woman Collection, says: “We offer store credit instead of cash refunds for two reasons: first, because it provides our customers with a more convenient and flexible option for future purchases. Second, because store credit incentivizes customers to shop with us again and helps us build long-term relationships with them.”

Encourage customers to spend more

Using store credit to encourage customers to spend more money might seem counterintuitive, but it works.

Studies have shown that credit cards make people spend more money. If a customer has $20 store credit, for example, they’re likely to spend above and beyond this figure, leading to higher sales.

Customers also feel better about spending more when stores offer a reasonable return policy. If you use store credit to allow for more flexible retail returns, you’re helping customers feel comfortable spending with you.

Lose less revenue to returns

Returns and exchanges can put retailers in a bind. You want to be flexible and provide customers with a satisfying experience—but returns mean lost revenue. Store credit helps avoid losing revenue to returns by turning those transactions into exchanges instead.

As a small business, it would be difficult for us to absorb the cost of a return at this time. We have decided that once we open our third retail store, we will then offer [traditional] returns.

Libby Diament, founder of Diament Jewelry

Take apparel stores, for example. Fashion customers are notorious for ordering several sizes of the same item and returning those that don’t fit—a tactic called bracketing.

Offering store credit instead of cash refunds allows you to ease the burden of returns on your bottom line by ensuring money stays within the business. It also helps improve the customer experience by providing a longer timeframe or accepting returns without a receipt.

Common types of store credit

There are four main ways retailers issue store credit:

Returns and exchanges

When customers return or exchange merchandise, store credit is often offered in addition to (or in lieu of) a full refund. If a shopper returns a $29 dress, for example, you could exchange it for a different size and/or provide $5 in-store credit to entice another purchase.

Store credit cards, financing, and layaway

Any time a retailer extends credit and allows customers to pay at a later date or incrementally, they’re issuing store credit.

Buy Now Pay Later users will reach over 900 million globally by 2027, according to Juniper Research. This includes Shop Pay Installments, which integrates with Shopify POS and allows customers to pay in smaller monthly installments.

Shop Pay installments is now 6.5% of our GMV. We've also seen a consistent increase in our average order value rate.

Will Beck, director of business development at Pillow Cube

Gift cards

When a customer buys a gift card, they’re essentially purchasing store credit to give to someone else. They get a personalized discount code—either digitally or via a physical gift card—which they can pass on to a friend to redeem the discount.

Gift cards are also used to hold store credit from returns or loyalty rewards. Retail associates can scan the barcode of a gift card to redeem the store credit on a future order.

Loyalty rewards

A customer loyalty program actively encourages previous shoppers to continue purchasing from your store.

LIVELY, for example, rewards repeat shoppers with two points each time they spend a dollar online or in-store. They earn $115 in annual store credit when they reach the second tier of the brand’s loyalty program.

How to use store credit to increase customer retention

There are all kinds of ways your store can leverage credit, but here are three important ones.

Be charitable

A brand’s social responsibility mandate can come in all shapes and sizes, but they all have one thing in common: a financial commitment. That can be hard for smaller retailers to pull off.

By using store credit as your charitable contribution, your store can make more of a difference without directly impacting revenue. That could mean:

• Offering store credit to members, employees, or beneficiaries of nonprofits
• Donating gift cards to charities or causes you and your customers care about
• Asking customers which nonprofit they’d like to donate to at the checkout desk, and providing store credit to the one with the most votes each month

Donating store credit or gift cards is more realistic for many smaller retailers than donating cash, but it’s still important to take into account the increased costs.

Incentivize referrals

Consider the recent success of direct-to-consumer brands like Rothy’s and Warby Parker. Those businesses have seen a ton of growth by disrupting traditional industries. They also all offer well-publicized referral programs.

Your store can do the same by incentivizing word of mouth. Offer store credit in exchange for any referrals that turn into new customers.

As McGrath says, “Offering incentives for customers who choose store credit, such as bonus points or discounts on future purchases, is a great way to gently guide your customers toward store credit options.”

Expand your return policy

Store credit (usually in the form of a gift card) is one way to add leniency and flexibility to your return policy. By replacing returns with store credit, you can offer a longer return timeframe and be more flexible about receipts and tags required, all while ensuring you don’t lose out on revenue.

Alexa Allamano, owner of Foamy Wader, says, “We detail in our return policy online that orders are final sale. Exchanges and size adjustments are always allowed, but due to the handmade nature of our business, cash refunds may incur a 25% restocking fee. That restocking fee often converts return requests into exchanges.”

How Shopify supports store credit

If you use Shopify to run your retail store, managing store credit is simple. Shopify provides several built-in tools that make it easy to issue, track, and redeem store credit.

1. Issuing store credit: From your Shopify admin, you can add store credit directly to a customer’s profile. Staff will need the right permissions to manage this feature.
2. Accepting store credit: Customers can use store credit as a payment method at checkout when they log into their customer account or use Shop Pay.
3. Managing store credit settings: Store credit is enabled by default. You can control its visibility as a payment method through your Customer account settings.
4. Setting expiration dates: To add urgency or meet specific policies, you can set expiration dates for store credit that expire at the end of the day in your store’s timezone.
5. Refunding to store credit: If a customer used store credit to make a purchase, you can refund the amount back into their store credit balance.

Shopify makes store credit work well because it keeps all customer information in one place. No matter if customers shop online or in your physical store, their store credit balance stays the same everywhere. 

This makes giving and using credit easier for everyone. Your staff can see each customer's shopping history, which helps them:

• Suggest products customers might like
• Give better customer service
• Handle returns more smoothly

With these features, Shopify allows you to offer store credit as part of your return and loyalty strategy, all while keeping money in your ecosystem.

Store credit is an opportunity for retailers

Store credit isn't just a standalone feature—it's a critical component of a unified commerce approach. When implemented through a unified platform like Shopify POS, store credit becomes even more powerful because it works seamlessly across all your sales channels.

Retailers using unified commerce platforms like Shopify see 22% better total cost of ownership and experience an 8.9% equivalent uplift in sales annually on average. This is because unified commerce eliminates the fragmentation that occurs when using separate systems for online and in-store operations.

With a unified approach to store credit:

• Customers can earn credit in-store and spend it online (or vice versa), creating a truly channel-agnostic experience
• Staff have complete visibility into a customer's purchase history and available credit balance regardless of where they shop
• Data flows in real-time between all channels, ensuring accurate credit balances and preventing customer frustration
• Reporting is comprehensive, allowing you to track the impact of your store credit program across all touchpoints

This level of integration is only possible with a unified commerce platform that treats all sales channels as part of a single, coherent system—exactly what Shopify POS delivers.