Scrip: Definition, Types, Common Examples, and Uses

Search Fintrev

Search our guides, reviews and glossary.

Scrip is any substitute for legal tender that entitles the holder to receive something of value from the issuer, such as goods, services, cash, land or shares. Gift cards, store credit, reward points and arcade tokens are everyday forms of scrip. In investing, the word has two further uses: a scrip dividend pays shareholders in new stock instead of cash, and in markets such as India and Pakistan “scrip” is broker shorthand for any listed security, so dealing in scrip simply means buying and selling shares.

What Is Scrip?

The core idea is a promise in place of money. When a business hands you scrip, it is postponing a cash payment, or replacing it altogether, with an obligation it controls. A $50 store credit slip, 10,000 airline miles and a subway token all work the same way: the issuer has already received value from you (or chosen to grant value to you) and owes you something back, but only on its own terms.

That is what separates scrip from legal tender. A dollar bill must be accepted for debts in the United States, and anyone can spend it anywhere. Scrip has no such status. Its acceptance ends at the issuer’s door, or at a network of partners the issuer chooses.

The term also covers temporary documents. When a stock split or spin-off leaves a shareholder with a fraction of a share, companies have historically issued fractional scrip certificates representing that piece. The holder could combine several certificates into a whole share or sell the fraction, though today brokers typically handle fractions electronically or pay them out in cash.

How Scrip Works

Scrip as a claim on the issuer

Every scrip arrangement has three parts: an issuer, a unit of account (points, credits, tokens, certificates) and redemption rules. The issuer decides where the scrip can be spent, whether it expires, whether it can be transferred and whether it can ever be converted to cash.

Those rules explain why businesses like it. Paying in scrip keeps cash inside the company, and because the scrip can only be redeemed there, the recipient has a reason to come back. A retailer that refunds in store credit instead of cash keeps the original sale’s revenue and gets a second visit from the customer.

Scrip has also served whole communities when cash was unavailable. Remote coal towns, military bases, ships at sea for long voyages and occupied territories in wartime have all relied on locally issued tokens or notes to keep trade moving.

Scrip in the share market

On exchanges in India, Pakistan and other South Asian markets, “scrip” is everyday trading vocabulary for an individual security. A broker may ask which scrip you want to buy, and a contract note lists trades scrip by scrip. The Bombay Stock Exchange assigns each listed security a numeric scrip code, which serves the same purpose as a ticker symbol.

This usage descends from the older meaning of scrip as a certificate representing ownership or a right to shares, including the provisional certificates issued before final share certificates were ready.

Types of Scrip

• Company scrip: private currency paid as wages, historically redeemable only at the employer’s store.
• Gift cards and gift certificates: prepaid value locked to one retailer, restaurant or brand. These are the most visible modern form of scrip.
• Store credit and coupons: value issued on returns or as promotions, spendable only with the issuer.
• Reward and loyalty points: airline miles, hotel points and some credit card points. Canadian Tire money, a paper currency that resembles banknotes and is earned as a percentage of purchases, is a well-known retail example.
• Tokens and tickets: subway tokens, arcade tokens and game-center tickets.
• Vouchers and IOUs: written acknowledgments of a debt to be settled later.
• Land scrip: government certificates exchangeable for public land. In Canada, Métis scrip was issued in the late 19th and early 20th centuries as certificates redeemable for land or money, as a means of extinguishing Métis land claims. Many holders sold their scrip to speculators for a fraction of its value.
• Scrip dividends and fractional scrip: share-based instruments covered below.

Company scrip and why it was outlawed

During the American Industrial Revolution, employers in company towns often owned the housing and the only general store. Paying workers in scrip that was spendable only at that store let the employer set prices freely, recapture much of the wage bill and make it harder for workers to save enough to leave. This truck system, in which pay came as goods, vouchers or tokens instead of cash, generally favored the employer, and resentment over it fed labor unrest, including the armed conflicts of the West Virginia coal fields.

The Fair Labor Standards Act of 1938 ended wage payment in company scrip. Employers can still give scrip as a perk or reward, but it cannot replace wages owed.

Scrip Dividends and Scrip Issues

A scrip dividend offers shareholders a choice: take the declared dividend in cash or in newly issued shares of equal value. Choosing shares is called a scrip election, and companies often let holders make a standing election that applies to future dividends too. The share price used for the conversion (the reference price) is typically set from the market price over a defined period around the dividend.

A scrip issue, also called a bonus issue or capitalization issue, is different. The company creates new shares and distributes them to all existing holders in proportion to their holdings, with no cash alternative. No new money comes in, and the total value of the company does not change; the same equity is simply spread across more shares.

Worked example (hypothetical)

Assume an investor owns 1,000 shares. The company declares a dividend of $0.50 per share and offers a scrip alternative at a reference price of $25.

• Cash option: 1,000 × $0.50 = $500.
• Scrip option: $500 ÷ $25 = 20 new shares.

The investor who elects scrip ends up with 1,020 shares and no cash. If the entitlement does not divide evenly, say $510 at $25 gives 20.4 shares, the company will usually carry the fraction forward or pay it in cash, depending on its scheme rules.

Two consequences follow. First, the share count rises, so earnings are spread across more shares, which can lower earnings per share if profits do not grow. Second, if the market price rises to $30 after the reference price is fixed, those 20 shares are worth $600, so the company has effectively paid out more value than the $500 it declared, while the electing shareholder gains.

Scrip Fundraising

Since the 1980s, scrip has become a fundraising tool for schools, sports teams, bands and other nonprofits. Retailers sell gift cards to the organization at a discount, and the organization resells them to supporters at full face value, keeping the difference.

Hypothetical example: a school buys a $100 grocery gift card at an assumed 8% discount, paying $92. A parent buys it from the school for $100 and spends it on groceries they would have bought anyway. The school keeps $8 toward a class trip, and the parent’s spending is unchanged. The retailer gains guaranteed future sales and possibly new customers.

Why Companies Use Scrip

For issuers, the advantages come down to cash and loyalty:

• Lower cash outflow. Refunds, rewards and dividends paid in scrip keep money in the business. Scrip dividends let a company retain capital for reinvestment without borrowing.
• Repeat business. Scrip spendable only with the issuer brings customers back.
• Unredeemed value. Gift cards and points that expire or are forgotten represent value the issuer collected but never had to deliver.

For holders, the benefits are narrower. Gift cards let a giver control where the money is spent. Shareholders who elect a scrip dividend can add shares without paying brokerage commissions or buying on the open market.

Limitations of Scrip

• Restricted use. Scrip is only as good as the issuer’s willingness and ability to honor it. If the issuer fails, gift card balances and points can become worthless or turn into unsecured claims in bankruptcy.
• Issuer control. Expiry dates, blackout periods, devaluation of points and transfer bans are all set by the issuer.
• Signal risk for dividends. A company leaning heavily on scrip dividends may be read as short of cash, which can weigh on the share price. Over-reliance on scrip of any kind can raise questions about a company’s solvency or ethics.
• Dilution. Every scrip dividend or scrip issue increases the share count. Shareholders who take cash while others elect shares see their percentage ownership shrink slightly.
• Tax treatment. In many jurisdictions, shares received in lieu of a cash dividend are taxed as if the cash had been received. A shareholder who elected scrip may need to sell some shares to cover tax on income they never received in cash. In some countries the treatment is more favorable, so the outcome depends on where the investor is taxed.

Scrip vs. Related Terms

FAQs

The Bottom Line

Shoppers, employees and shareholders all meet scrip in different forms, and each form is a claim whose value depends on the issuer's rules and solvency. Gift card and points holders should watch for expiry and devaluation. Investors offered a scrip dividend should weigh the convenience of extra shares against dilution and a possible tax bill on income they never received in cash.