How to handle deposits and upfront payments

Asking for money before the work is done feels awkward. Most small firms avoid it. Then they end up buying materials out of their own pocket and hoping the client pays later.

A deposit fixes that. It protects your cash flow. It also makes the client take the booking seriously. This is how to do it properly.

Why a deposit protects you

A deposit does two jobs.

First, it covers your real costs before you start. Materials, bespoke items, supplier orders, and time spent on surveys and planning.

Second, it proves the client is committed. A booked date is a promise from both sides. When money has changed hands, fewer jobs fall through at the last minute.

How much is fair

There is no fixed legal amount. The Competition and Markets Authority advises that a deposit should be a small percentage of the total price. Many tradespeople ask for 10 to 30 percent.

A good rule is simple. The deposit should cover what you have already spent or committed before the job starts. If you are ordering £800 of bespoke parts for a £2,000 job, a £500 deposit leaves you exposed. The deposit should at least match the cost you cannot get back.

Avoid taking most of the money upfront. If you ask for 80 percent before lifting a tool, the client has reason to worry. Leave a sensible balance to pay on completion.

For aesthetics and beauty bookings, deposits are often smaller. A flat booking fee that covers the cost of a no show is common. The same fairness rules apply.

Put it in writing before money changes hands

Never take a deposit on the strength of a text message. The deposit terms belong in your quote or contract, in plain words.

Write down all of these.

The total price, and whether VAT is included. Confusion over VAT causes more arguments than almost anything else.

The exact deposit amount and the date it is due.

What the deposit covers. State it plainly. Materials, bespoke orders, survey time, or simply booking the date.

What happens if the client cancels. Say exactly how the deposit will be handled. More on this below.

What happens if the start date moves. Make clear who pays the cost of the delay.

The payment stages for the rest of the job. Tie each stage to finished work, not to dates alone.

What happens if the client cancels

This is where most disputes start. Here is what UK consumer law says.

Under the Consumer Rights Act 2015, contract terms for consumers must be fair. You cannot simply keep the whole deposit as a punishment for cancelling. A term that lets you keep a large payment whatever the circumstances can be challenged as unfair.

What you can keep is your genuine loss. Costs you have already paid and cannot recover. Bespoke materials the supplier will not take back. Labour you booked and now cannot reassign. Time spent on surveys and planning.

If you fill the cancelled slot with another job, keeping the full deposit becomes hard to justify. Fair practice is to refund the difference between the deposit and your real loss.

So instead of writing "deposit is not refundable", write this instead. "If you cancel, we will keep a fair amount that covers the costs we cannot recover, and refund the rest." That is easier to explain, easier to enforce, and far less likely to end in a card payment dispute.

For business clients, the same principle applies in practice. Being fair keeps the relationship and the review.

The 14 day rule for work agreed at home

If the contract was agreed in the customers home, online, or by phone, the customer may have a 14 day cancellation period. This comes from the Consumer Contracts Regulations.

You must give the customer the required cancellation information before they commit. If the customer wants work to start during that 14 day period, get an express request in writing first. Explain they may have to pay a fair amount for the work already done if they cancel.

If you skip this paperwork and the customer cancels, you can lose the right to charge for the early work. A short written form avoids the whole problem.

VAT on deposits if you are VAT registered

This one catches people out. For VAT registered businesses, receiving a deposit creates a VAT tax point. You must account for the VAT in the quarter when the customer paid you, even if you have not invoiced them yet.

Say a customer pays a £600 deposit in March and you do the work in May. The VAT on that £600 belongs on the return that covers March.

If the customer cancels and you refund the deposit in full, you can adjust the VAT back. If you keep part of it as a cancellation charge, VAT applies to the amount you keep.

If you are not VAT registered, this section does not apply to you. Just keep clean records of what was paid and when.

How PlusWise helps

PlusWise lets you record the deposit against the job and the invoice, so you always know what is paid and what is still owed. When you send the final invoice, the deposit is already accounted for. No awkward maths on the day. Payment links on invoices also make it easy for clients to pay a deposit straight away, without chasing bank transfers.

Quick answers

Should I take deposits from every client? Not every job needs one. A two hour repair probably does not. A job that needs materials ordered, diary time blocked, or bespoke parts almost always does.

What is a normal deposit percentage? Most small firms ask for 10 to 30 percent. Tie the figure to your real costs, not to habit.

Can I call a deposit not refundable? You can label it that way, but the label alone does not decide what happens. What matters is whether keeping the money is fair given your actual loss. Write your terms around genuine costs instead.

Do I need a receipt? Yes. Always give a written receipt showing the amount, the date, and what it relates to. It takes seconds and ends arguments before they start.

What if the client offers to pay everything upfront? Take it, but treat the money carefully. It is still the clients money until you do the work. Keep clean records, and remember the VAT timing rules above if you are VAT registered.

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Sources checked October 2026: Which? guidance on claiming back non refundable deposits; Competition and Markets Authority guidance on unfair contract terms; GOV.UK guidance on VAT instalments, deposits and credit sales; Consumer Rights Act 2015 explanatory notes; GOV.UK guidance on online and distance selling.