Scrips

Scrip: Definition, Types, Uses, and Pros & Cons

Key takeaways
* A scrip is a substitute for legal tender that entitles the holder to receive goods, services, cash, or equity.
* Common modern examples include gift cards, reward points, coupons, and store credit.
* Historically, scrip paid workers in company towns and was restricted by labor law; today it’s used by retailers, loyalty programs, and companies issuing stock dividends.
* Scrip lets issuers preserve cash and encourage repeat business, but can raise concerns about solvency or fairness.

What is a scrip?
Scrip is any document or token that acts as an alternative to official currency and can be redeemed for value from the issuer. It typically represents a claim or credit rather than legal tender and is redeemable only where the issuer accepts it.

Historical context
Scrip dates back to the Industrial Revolution, when employers paid workers in commodities, vouchers, or tokens under the “truck system.” That practice allowed employers to control workers’ spending and was a source of exploitation and labor unrest. Paying wages in company scrip was effectively ended in many jurisdictions by labor reforms (for example, provisions enacted in 1938 in the United States).

Common types and examples
* Gift cards and gift certificates — retail-specific preloaded value.
* Loyalty and rewards points — airline miles, credit-card points, store rewards.
* Store or arcade tokens, vouchers, and tickets — usable only at the issuing venue.
* Company scrip / store credit — refunds or compensation redeemable only with the issuer.
* Land scrip — historical certificates entitling holders to a parcel of land.
* IOUs and discounted fundraising cards — short-term credit instruments.
* Retail-specific currency — examples include regional promotional “money” like Canadian Tire money.

How scrips work
Issuers distribute scrip to defer or avoid immediate cash payouts while ensuring recipients remain customers or stakeholders. Because scrip is typically redeemable only with the issuer (or within a limited network), it channels spending back to the issuer and preserves the issuer’s cash flow.

Scrip in fundraising
A common fundraising method uses discounted gift cards supplied by retailers. A nonprofit buys gift cards at a discount and sells them at face value; the difference becomes fundraising revenue. This approach is popular with schools, teams, and community groups.

Scrip in the stock market
* Scrip dividend — a company offers shareholders the option to receive dividends in additional shares instead of cash. This conserves corporate cash and lets shareholders increase holdings without a market purchase.
* Scrip election — the shareholder’s choice to accept stock rather than cash for a dividend.
* Scrip issue (bonus issue) — when a company issues new shares to existing shareholders, increasing share count but not necessarily changing proportional ownership.

Advantages
* Preserves issuer cash flow and can finance operations without borrowing.
* Encourages repeat business and customer loyalty.
* Allows shareholders to increase holdings without buying shares on the open market.
* Useful as a short-term currency substitute in isolated or cash-poor environments.

Disadvantages
* Can advantage the issuer over the recipient (restricts where value can be spent).
* Over-reliance may signal cash-flow problems or poor corporate health.
* Recipients may face inconvenience, limited choices, or tax consequences (e.g., selling shares received as scrip dividends to meet tax liabilities).

Frequently asked questions
What is meant by scrip?
A substitute or alternative currency or token that can be redeemed for goods, services, or value from the issuer.

How do scrips benefit companies?
They reduce immediate cash outflows, retain customers within the issuer’s ecosystem, and can preserve liquidity for reinvestment.

What is the difference between a scrip dividend and a scrip issue?
A scrip dividend gives shareholders the option to receive dividends as shares instead of cash. A scrip issue (bonus issue) involves the company creating and distributing new shares to shareholders.

Bottom line
Scrip is a versatile instrument that has evolved from exploitative company tokens to widespread modern uses like gift cards, loyalty points, and stock dividends. It offers clear benefits for issuers—cash preservation and customer retention—but can impose limits or raise concerns for recipients if overused or misapplied.