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What is scrip?

Scrip is a term that refers to any kind of substitute for money that is not legal tender. It can be used as a form of credit, where the scrip holder can exchange it for something of value later. For example, some stores may issue customers gift cards or loyalty points as scrips. A bank or a company can also issue scrips to show that someone has invested money in them and can claim dividends or shares later.

For example, a scrip dividend is a way of paying shareholders with additional shares instead of cash. Another type of scrip is a temporary document representing a fraction of a share resulting from a stock split or a spin-off. For example, if a company splits its stock 2-for-1, each shareholder may receive one new share and one scrip for each old share they own. When enough scrips are collected, the scrip can be exchanged for another new share. Scrips can also be used as a form of currency by a private organization, such as an airline or a casino. For example, frequent flyer miles and casino chips are examples of scripts that can be used to buy goods or services within the issuer's network. Scrips are helpful in studying the nature and functions of money and how it affects the economy.


Advantages and Disadvantages of Scrip

Scrip is a way for a company to limit how much cash it spends while promoting customer loyalty. For instance, a company that gives store credit instead of cash refunds can keep the cash from the original sale and encourage the customer to return.

Likewise, a company that gives a scrip dividend can save cash and reward its shareholders simultaneously. The company can use the saved cash to invest in its growth without borrowing more money. Shareholders who get a scrip dividend can get more free shares without paying any fees. They may also enjoy some tax advantages from getting a non-cash dividend.

However, a scrip dividend may signal the company has cash-flow problems. Sometimes, shareholders may need to sell some of their extra shares to cover the tax on the additional dividends. A company may give more dividends than intended if the share price goes up after a scrip dividend is declared