On Friday a young, single mom called our BBB office about a coupon she purchased. It offered her $200 worth of day care services, but she only paid $100 for it. Great deal, huh?
A few years ago, a local car wash was selling prepaid coupons, saving the buyer about 30 percent. They were good for 12 months and would save the frequent washer quite a bit of money.
In another instance, the restaurant down the street sold discounted $100 gift cards for $80 each. So if you purchased them as a gift, you’d get more bang for your buck and your recipients more steak for their potatoes, so to say.
These discount offers could be fantastic money savers, but in all of these scenarios there was a problem: The companies went out of business before the coupons, tokens or gift cards were used. It was a big waste of money.
When the multi-location car wash went out of business in Spokane, the BBB was hit with more than 100 complaints the day of the announcement. People were really angry, especially those who had just bought coupon books. Failure does not happen overnight; this has to be fraud, they complained.
I talked to the firm’s attorney and asked why a business would sell prepaid services knowing they were going down the drain. He responded, “Hope springs eternal,” adding that sometimes selling prepaid discounted services is a last-ditch effort to increase cash flow and keep the business afloat.
While sticking with gift card or coupon purchases from larger, well-known companies might be safer, I wonder just how many people were holding onto Borders gift cards and certificates when they closed. Unless you can get a deal at a competing bookstore, they are now worthless, too. Montgomery Ward went away, too. But you’d have to be living under a rock not to have known both of these corporations were in trouble and that using your gift card quickly would be wise.
How can you be safe and smart?
• Use coupons and gift cards quickly.
• If buying a prepaid service, check out the company before you part with your money.
• Does the business feel prosperous, or is there a feeling of desperation in the sales pitch?
• If possible, use your credit card to buy the coupons, as it offers you additional protection, but only 90 days from the purchase.
We seldom see anyone get money back from these prepaid offers. When the company closes its doors, the tax man is first in line. Failure to pay payroll taxes is often what pushes small businesses into insolvency. Next in line are the secured creditors.
In many cases there is little left for customers who have prepaid for a service or even put a deposit on an item.
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