Asking Clients for a Deposit: How Much and How
Short answer
Ask for a deposit in your quote, before any work starts, and tie it to a reason such as materials or booked time. Size it to cover your costs until the first milestone, and link the rest to visible progress. Invoice the deposit separately, account for VAT when the money arrives, and deduct it on the final invoice.
The default rule in most legal systems is that you get paid after the work. Germany writes it into the civil code: payment for a contract for work falls due on acceptance. English and American common law reach a similar result unless the contract says otherwise. For a founder with no cash buffer, that means fronting materials, software and travel for weeks.
Deposits fix that. It is not a sign of mistrust. It is financing.
When you can ask for a deposit
Whenever you agree it before the work starts. No law gives you an automatic right to be paid upfront for a service or a custom job, so the deposit has to be in the quote, the proposal or the contract. Any quote the client signs or accepts by email is enough.
What you cannot do is add a deposit halfway through and stop work until it arrives, unless the contract allows it. Put the terms in writing at the start, when your negotiating position is strongest.
Deposit, progress payment, prepayment
People use these words loosely. For tax and contract purposes they are different things.
| Term | When the money arrives | Typical use |
|---|---|---|
| Deposit | Before work starts | Projects with material costs or a booked time slot |
| Progress payment | After a milestone, based on work done | Construction, larger software projects |
| Prepayment | In full before delivery | Online shops, courses, digital products |
| Final invoice | After completion, minus what was paid | The balance at the end |
Some industries have their own rules. California, for example, caps the down payment on home improvement contracts at 10 percent of the price or $1,000, whichever is less. If you work in construction or home services, check the local rules before you copy a template.
How much deposit to ask for
Between businesses, you can agree whatever the client accepts. Twenty percent, fifty percent or the full amount upfront are all legal. Whether you get it is a negotiation, not a legal question.
Start by covering your costs before the first milestone. If a website project needs a theme licence, stock photos and two weeks of your time before the client sees anything, the deposit should cover at least that. Payment plans that track the project tend to get accepted:
- one part on signing, enough to cover your early costs,
- one part at a visible milestone, such as design approval,
- the balance on completion.
Consumers are a different matter. UK courts can use the Consumer Rights Act 2015 to strike out unfair terms, and a large non-refundable deposit that has no link to your real costs is a classic example. EU consumer law works in a similar way. Keep consumer deposits modest and explain what they pay for.
For software builds it helps to define milestones that are technically meaningful before you price them. Free first consultations, such as the one OnlineBuilders offers, are one way to get a second opinion on where sensible checkpoints sit.
The deposit invoice and VAT
Issue a separate invoice for the deposit, marked clearly as an advance payment for work not yet delivered. If you are VAT-registered, the tax point for an advance payment is generally the date you receive it. That is how HMRC treats deposits in the UK, and the EU VAT Directive sets the same rule for advance payments. Germany follows it too, even for businesses that normally account for VAT on invoices issued.
- Deposit invoice: £2,000 + 20 % VAT
- £2,400
- Final invoice: full job £6,000 + 20 % VAT
- £7,200
- minus deposit (net)
- − £2,000
- minus VAT already invoiced on the deposit
- − £400
- Balance due on the final invoice
- £4,800
Show the full job on the final invoice and deduct the deposit and its VAT, so the tax is not charged twice.
If you forget the deduction, you can end up owing VAT on the deposit twice, because it was shown separately on both invoices. Accounting software usually handles this, but check the first one by hand.
Wording you can copy
Deposits are rarely refused when they are explained and dated. Adapt this to your trade:
Payment terms: 35% of the project fee is due on acceptance of this quote and will be invoiced as a deposit. Work begins once the deposit has been received. A further 35% is due on approval of the first draft, and the balance on completion. All invoices are payable within 14 days.
The key sentence is “Work begins once the deposit has been received.” It turns the deposit into a condition rather than a favour.
When the deposit does not arrive
If your quote says work starts once the deposit is paid, the answer is simple: you do not start. A polite reminder after the due date usually does the job. Invoices get lost in inboxes more often than clients refuse to pay.
The final invoice is different, because by then the work is done. UK businesses can rely on the Late Payment of Commercial Debts (Interest) Act 1998 against other businesses: statutory interest of 8 percentage points above the Bank of England base rate, plus a fixed sum of £40, £70 or £100 depending on the size of the debt. In Germany, a business customer is in default 30 days after the invoice is due and received, and owes interest of 9 points above the base rate plus a €40 flat fee. Knowing these numbers changes the tone of a reminder. You rarely need to use them; mentioning them politely is often enough.
When a client cancels
Decide in advance what happens and write it down. Cancellation scales that reflect your actual work are fairer and easier to enforce than a flat “deposits are non-refundable”. For example: full refund if cancelled within 48 hours of signing, deposit minus time spent if cancelled before the first milestone, no refund after approval of the draft.
German law, relevant to many readers of this site, lets a client end a contract for work at any time, but you keep the agreed fee minus the costs you saved; for the part not yet done the law presumes you are owed 5 percent. Other jurisdictions are less precise, so the contract matters more.
Deposits are the single most useful tool for working without capital, because your clients fund your early costs. The guide to bootstrapping a business shows how to build a whole funding model around that, and the list of low-cost business ideas shows which models suit it best. If you are setting up in Germany, the overview of self-employed costs in Germany covers the tax side. Your next step is concrete: open your standard quote today and add a deposit clause.
Questions people ask
Is it unprofessional to ask for a deposit?
No. Builders, photographers, venues and agencies do it routinely. Clients who refuse any upfront payment on a project of several weeks are telling you something about how they will pay at the end.
Can I keep a deposit if the client cancels?
With business clients, whatever the contract says usually applies. With consumers, UK and EU law limit how much you can keep: a deposit that far exceeds your actual loss can be treated as an unfair term. A cancellation scale tied to work done is easier to defend.
Do I charge VAT on a deposit?
If you are VAT-registered, yes. In the UK and across the EU, VAT on an advance payment is generally due when you receive it, not when the job is finished.
What is the difference between a deposit and a retainer?
A deposit is part of the price of a specific job, paid early. A retainer usually buys availability or a block of hours over a period. Both should be written into the agreement so nobody argues later about what the money was for.
