A deposit invoice is a billing document a seller sends to a buyer to request up-front payment for goods or services before they are fully delivered. It’s often used in situations where the seller needs to secure partial payment to begin work or when the buyer and seller agree to split payments into stages, with the deposit serving as the first instalment.

Between August 2023 and January 2024, there was a 20% rise in the number of companies reporting average payment times of over 80 days. Deposit invoices can help mitigate this risk and ensure your business receives at least part of the total payment promptly. Below, we’ll discuss how to structure a deposit invoice, calculate the right deposit amount, and communicate deposit terms to clients.

What’s in this article?

• Why is a deposit invoice useful for businesses?
  
• How to structure a deposit invoice
  
• When should you use a deposit invoice?
  
• How to calculate the right deposit amount for your business
  
• How to communicate deposit terms to clients
  

Why is a deposit invoice useful for businesses?

A deposit invoice helps businesses protect their time, money, and resources. A paid deposit invoice can:

• Cover up-front costs such as buying materials, paying employees, and renting equipment

• Reduce the chances of a customer changing their mind, since they’ve already invested

• Protect you from total losses if a client later backs out or delays payment

• Clarify payment expectations, such as remaining payments and refund policies, before work begins

• Allow you to more comfortably commit to bigger projects, as you’re taking on less financial risk

How to structure a deposit invoice

You’ll want to structure your deposit invoice to show all the information both you and your customer need. Here’s what to include.

Header and contact information

• A “Deposit Invoice” title

• Your business name and logo

• Your business email, phone number, and business address

• A unique invoice number for tracking

• Issue date

Customer information

• Customer’s name or business name

• Customer’s address and contact details

List of goods or services

• Project description

• Products or services being reserved

• Scope of work

• Quantities

• Unit prices

Deposit amount

• Total project or order cost

• The deposit percentage or flat fee owed (e.g., 50% of total cost, $500 flat)

• Remaining balance due after deposit is paid

Payment terms

• Payment methods accepted (e.g., bank transfer, credit card)

• Payment due date

• Any penalties for late payments

Terms and conditions

• Refund policy

• Cancellation policy

• Delivery date or work start date, contingent on receiving the deposit

Notes or additional information

• A short thank-you

• Reminder of any important details

When should you use a deposit invoice?

A deposit invoice is a good idea when you need to secure commitment, cover up-front costs, or manage risks before you deliver goods or services. Here are some specific situations where it’s most useful:

• If you need to spend money on materials, labour, or equipment before starting a project. Examples include:

  • Construction and renovation projects
    
  • Custom manufacturing or made-to-order products
    
  • Catering or event planning
    

• For services where your availability is limited and you need to reserve time or resources. Examples include:

  • Booking appointments (e.g., photography sessions, consultations, workshops)
    
  • Venue or equipment rentals
    
  • Freelance or contract work
    

• For long-term or phased projects that span weeks or months. Examples include:

  • Software development or digital marketing campaigns
    
  • Interior design or landscaping projects
    
  • Complex legal or consulting services
    

• For projects where cancellations or no-shows could cost you time and money. Examples include:

  • Event planning or wedding services
    
  • Custom art commissions or specialised designs
    
  • Any situation where work starts immediately after booking
    

• When you work with a new or high-risk customer with whom you want to reduce your financial exposure. Examples include:

  • Customers who place large or custom orders
    
  • Non-refundable or unrecoverable services
    
  • Industries with a risk of delays or cancellations
    

• When project deliverables or milestones are split over time. Examples include:

  • Charging at the start, midpoint, and completion of a project
    
  • Charging a deposit after signing a contract, with the balance due on delivery
    

How to calculate the right deposit amount for your business

Figuring out how much to charge as a deposit is about balancing what you need to protect your business with what feels reasonable to your customers. Here’s what to consider:

• Up-front costs: Think about what you’ll spend before the project even starts. This could include materials, labour, rental fees, or travel. The deposit should cover these costs so you’re not paying out of pocket.

• Project scope: Larger projects often require larger deposits, because they’re more expensive to start and it’s more difficult to recover funds if anything goes wrong. You can typically charge smaller deposits for more minor work.

• Project risks: Custom work that can’t be resold comes with higher risks and should require a bigger deposit to protect you if the customer backs out. Deposits can also help reduce the financial risk of no-shows and strengthen your customers’ commitment to the project.

• Industry norms: Look at what’s typical in your field. Customers are more likely to accept your deposit if it’s similar to what they’ve seen from other vendors. For example, event venues often ask for 50% down, while freelancers might charge closer to 30%.

• Customer relationship: You want the deposit to feel fair. For a first-time customer, a higher deposit might make sense. You’ll likely feel more comfortable charging a lower deposit for repeat customers since there’s already a relationship.

Once you’ve considered these factors, you’ll need to decide whether you want to charge a percentage or a flat fee for your deposit. Percentages are more common for larger projects or those with more variable costs (20%–50% of the total price is often a good range), while flat fees might work better for smaller or standard jobs (e.g., $100 to book a service).

If you’re offering refundable deposits, you should also ensure you’re comfortable with the risk of having to give them back. This might mean setting the deposit slightly lower than you would for nonrefundable agreements.

Sample scenarios

Simple job, low risk

• Total cost: $1,000

• Up-front costs: $200

• Deposit: 20% ($200, to cover up-front costs)

Custom project, high risk

• Total cost: $2,000

• Up-front costs: $500

• Deposit: 50% ($1,000, to cover up-front costs and ensure commitment)

Ongoing service

• Total cost: $5,000 over 6 months

• Deposit: 25% ($1,250, to cover the initial phase)

How to communicate deposit terms to clients

You should clearly communicate your deposit terms to avoid misunderstandings and build trust with clients. Here’s how:

• Mention the deposit requirement as soon as possible – ideally during your first conversation or in your proposal.

  • Example: “To secure your booking, we require a 30% deposit up front, with the balance due on completion.”
    

• Use plain language. Say exactly what the deposit is for, how much it is, and when it’s due.

  • Example: “We require a 30% deposit to cover materials and up-front expenses, due by the 1st of the month.”
    

• Explain the reason for the deposit so clients understand why it’s necessary. Frame it in terms of protecting both sides of the agreement.

  • Example: “The deposit confirms your booking and allows us to allocate time and resources to your project.”
    

• Always document the deposit terms in writing. Do so in either your contract, invoice, or an email. Include the deposit amount, due date, and payment methods accepted.

• Communicate your refund and cancellation policies when you share the deposit information.

  • Example: “Deposits are non-refundable unless the cancellation is made at least 14 days before the appointment.”
    

• Send a deposit invoice that clearly outlines the project’s total cost, the deposit amount and what it covers, the remaining balance, when it’s due, and what happens next after payment.

  • Example: “Once we receive the deposit, we’ll start the initial design phase and confirm the project timeline.”
    

Here’s an example email for communicating the full deposit terms to your client:

Subject: Deposit details for your project

Hi [Client’s Name],

We’re excited to get started on your project! To secure your booking and begin work, we require a deposit of [Amount], which is [X%] of the total project cost. This deposit helps cover initial costs and allows us to block off the necessary time on our schedule.

Here’s a quick breakdown:

Total Cost: [Total Amount]

Deposit Due: [Deposit Amount]

Balance Remaining: [Remaining Amount] due [Final Payment Date]

The deposit is due by [Due Date]. Once we receive it, we’ll [Next Steps].

You can pay via [Payment Methods]. Please let us know if you have any questions!

Thanks,
[Your Name or Your Business]

If a client doesn’t pay the deposit by the due date, send a polite reminder, such as the following:

Hi [Client’s Name],

Just a quick reminder that the deposit of [Amount] is due by [Due Date] to move forward with your project. This ensures work can begin on time and that all resources are ready when needed. Let us know if you have any questions!