How to take a deposit on an invoice

Why take a deposit at all

A deposit does three jobs at once, and each one is worth money to you.

• It protects your cash flow. If you buy $2,000 of tile before you set foot on a job, that $2,000 is out of your account until the client pays. A deposit means the client funds the materials, not you. You're never lending money to a customer without meaning to.
• It confirms the client is serious. A client who won't pay a deposit is telling you something. People who put money down show up for the appointment, answer the phone, and pay the balance. A deposit filters out the tyre-kickers before you've spent a day on them.
• It covers materials and slots you book. A photographer who blocks a Saturday for a wedding has turned down every other booking for that day. The deposit pays for the slot whether the couple shows up or not. A contractor who orders custom cabinets can't return them if the client walks away.

The rule of thumb: the bigger the job, the longer it runs, or the more you have to spend before you get paid, the stronger the case for a deposit. A quick one-hour call rarely needs one. A three-week renovation almost always does.

How much to ask for

For most small jobs, a deposit of 25% to 50% of the total is normal and nobody blinks at it. Where you land inside that range depends on how much you have to spend before you start:

• 25% to 33% when the job is mostly your labour and you buy little up front. A consultant, a designer, or a tutor booking a block of sessions.
• 50% when materials are a big part of the cost, or the slot is hard to re-book. A plumber replacing a hot water system, a photographer holding a wedding date, an electrician wiring a new extension.

For a bigger project, one deposit isn't the right shape. Split the total into milestone payments so money comes in as the work moves, and neither side is ever carrying too much risk:

• 50 / 25 / 25. Half up front, a quarter at the midpoint, the last quarter on completion. A clean default for a job of a few thousand dollars.
• 30 / 30 / 30 / 10. Common in construction and renovation. Three even payments as the work progresses, with the final 10% held until the client signs off on the finished job. That last slice gives them a reason to do the final walk-through and gives you a reason to finish clean.

A worked example. Say a kitchen job is $8,000. On a 50/25/25 split, the client pays $4,000 before you order anything, $2,000 when the units are installed, and $2,000 when the last handle is on and they're happy. You're never more than a milestone out of pocket, and they never pay for work they haven't seen.

Agree it and word it in writing first

The deposit has to be agreed in writing before work starts, not sprung on the client after. It doesn't need a lawyer or a fancy contract. A short paragraph in an email, confirmed with a "yes, that works" reply, is enough to save you a painful conversation later.

Three things go in writing:

• The amount and when it's due. "A 50% deposit of $4,000 is due before we order materials. The balance is due on completion." Now there's no confusion about what starts the clock.
• What the deposit covers. Spell out that the deposit goes toward the total, not on top of it. Clients sometimes fear a deposit is an extra fee. It isn't, and saying so removes the friction.
• Whether it's refundable. This is the line that prevents the worst argument. Decide up front and write it down.

On that last point, be clear with yourself about which kind of deposit you're taking:

• Refundable. The client gets it back if they cancel before you've spent anything or booked out time. Fair when you haven't yet committed money or a slot.
• Non-refundable. The client doesn't get it back, because the moment they paid it you turned down other work or bought materials you can't return. If you're going to make a deposit non-refundable, say so plainly in the written agreement. A deposit the client didn't know was non-refundable is the kind of dispute that ends up as a bad review.

A common middle path: the deposit is refundable up to a cut-off (say, seven days before the booked date) and non-refundable after that, because past that point you can no longer re-book the slot. Whatever you choose, the client should have read it and agreed to it before they pay a cent.

Two ways to put it on an invoice

There are two clean ways to handle the paperwork. Both are correct. Pick the one that matches how you like to work.

Option A: a deposit invoice now, a balance invoice later

Send one invoice for the deposit only, then a second invoice for the balance when the work is done. On the $8,000 kitchen with a 50% deposit:

• Invoice 1 goes out today. One line: "Deposit, kitchen installation (50% of $8,000)". Total: $4,000. Due before materials are ordered.
• Invoice 2 goes out on completion. It shows the full $8,000 job, then the $4,000 deposit already paid, leaving a balance due of $4,000.

This works well when the deposit and the final bill are weeks or months apart, or when the client's accounts-payable system wants a separate invoice for each payment. Each invoice is a clean record on its own.

Option B: one invoice, deposit entered as an amount paid

Raise the full invoice for the whole job, then record the deposit against it as a payment. The invoice shows the total, the amount paid, and a balance due that drops as money comes in. On the same job:

• Invoice total: $8,000.
• Deposit received: $4,000 entered as an amount paid.
• Balance due: $4,000, updated automatically.

This keeps everything on a single document, which is easier to track and easier for the client to follow. It's the natural fit for milestone billing, because each milestone payment lands against the same invoice and the balance due walks down to zero. It's the approach most accounting apps are built around, and it's the one I'd reach for on most jobs.

Give a receipt for the deposit

The moment the deposit hits your account, send the client a receipt. It's a small courtesy that heads off two problems at once: the client wondering whether the money arrived, and either side losing track of what's still owed.

A deposit receipt shows:

• The amount paid and the date it was received.
• What it was for, tied to the invoice or job (for example, "Deposit against invoice 2026-0042").
• The balance still owing, so both sides are looking at the same number.

If you're using Option B above, the receipt more or less writes itself: it's the invoice reprinted with the deposit now showing as paid and the balance due updated. If you're using Option A, the receipt is your confirmation that the deposit invoice is settled, ahead of the balance invoice you'll send later. Either way, keep a copy for your own records. A deposit is income the day it arrives, and you'll want the proof at tax time.

When tax applies to a deposit

This is the part where the honest answer is "it depends, and check with an accountant for your situation." Whether tax is due on a deposit, and exactly when, varies by country and by the kind of deposit you're taking. Here's the general shape in four places:

• United States. Sales tax rules are set state by state and vary a lot. In many states a deposit toward a taxable sale becomes taxable when the sale is taxable, but the timing and the treatment of forfeited deposits differ. Check your state revenue site.
• Canada. A true deposit, one that's refundable and just secures the deal, generally isn't subject to GST/HST until it's applied to the sale. Once it counts as a payment toward the goods or services, tax usually follows. A forfeited deposit can be treated differently again.
• United Kingdom. For VAT, the tax point is often the earlier of the invoice date or the date you receive payment, so taking a deposit can trigger VAT on that amount at that moment. Refundable security deposits are usually outside the scope of VAT unless they're kept.
• Australia. A security deposit generally isn't subject to GST when you take it, but it can become taxable when it's forfeited or applied as part of the payment for the supply. The timing depends on the type of deposit.

Track the deposit and the balance in one place

A deposit only helps if you can see, at a glance, what's been paid and what's still owed. On one job that's easy. Across ten jobs with different deposits and milestones, it's the kind of thing a spreadsheet quietly starts dropping.

This is where Argo Books earns its place. The app is built around exactly this flow:

• Deposits and partial payments. Record the deposit against the invoice and every milestone payment after it. The balance due updates itself, so the number on screen is always what the client actually owes.
• Security-deposit line rows. When a deposit is a distinct item rather than a payment toward the job, you can add it as its own line on the invoice, and it's tracked separately right through to any refund.
• Invoice status that keeps up. An invoice moves to Partial once a deposit is paid, then to Paid when the balance clears. You can see which jobs are half-paid and which are done without opening each one.

Because the app records what's actually been paid, the outstanding balance across every open invoice is right there without you adding it up. That's the whole point of taking a deposit: to be paid as you go, and to always know where you stand. When the last milestone lands, the invoice reads Paid and the job is closed out with a clean record behind it.

New to invoicing in general? Start with how to invoice clients, then come back and layer deposits on top.