Loyalty Register glossary
Liability release
Removing part of the points liability from the balance sheet and recognizing it as revenue, because points were redeemed, expired or are expected never to be used.
Liability release is the accounting step that removes part of a loyalty program’s points liability from the balance sheet and records it as revenue. When points are issued, part of the sale is deferred because the business owes a reward. When that obligation ends, the deferred amount is released.
Updated · By Loyalty Register Editorial TeamRelated terms
What triggers a release?
Three things. Redemption is the main one: when a member uses points, the business delivers the reward and recognizes the revenue it had deferred. Expiry or forfeiture is the second: if points lapse under the program’s rules, the obligation ends. The third is breakage: if the business expects, on good evidence, that some points will never be redeemed, it can release that expected share gradually. Delta Air Lines, for example, says it recognizes mileage breakage proportionally as the remaining miles are redeemed.
Why does the timing matter?
Because it moves revenue between periods. Under ASC 606 and IFRS 15, expected breakage is released in step with actual redemptions when it can be estimated reliably, not all at once. In a hypothetical program with a $4.5 million liability, a 15% breakage estimate implies $675,000 will be released over time. Raise the estimate to 20% and the total becomes $900,000, adding $225,000 of revenue without any change in member behavior. That is why changes to the breakage estimate need evidence and sign-off.
Can low redemption justify a release?
Only if it reflects member choice. If members are not redeeming because rewards are scarce, priced too high or hard to find, the program still owes them the value, and they may redeem later when conditions improve. Releasing liability on the back of friction can lead to a reversal, and it rewards poor program design in the accounts.
What should you watch?
- How much revenue each period comes from breakage rather than redemptions.
- Whether breakage estimates were raised in the same period as rule changes that made rewards harder to reach.
- Balances that may be subject to unclaimed property rules, which should not be released as breakage.
- Large one-off releases when a program ends or changes its expiry rules, which deserve their own explanation to members and to the board.