TL;DR
If you've ever done work and not gotten paid, you need a deposit policy. Here's how to set one up, how much to charge, and how to handle clients who push back.
If you've ever finished a project and then spent weeks chasing the payment, you already know the answer. Yes. Charge deposits. I've seen service businesses go under not because they didn't have clients, but because they couldn't collect fast enough to cover their costs.
Why Deposits Matter
A deposit does three things. It funds your early costs (materials, prep, reserved time). It signals commitment from the client. And it protects you if the project gets canceled.
According to FreshBooks, businesses that require deposits get paid 2x faster on average and experience 35% fewer payment disputes. That's not a small difference. That's the difference between healthy cash flow and constantly worrying about making payroll.
How Much to Charge
Most service businesses charge 25% to 50% upfront. The right amount depends on your costs and risk. If you're buying materials or hiring subcontractors, the deposit should at least cover those costs. If you're booking time in your calendar that can't be given to another client, the deposit compensates for that reserved capacity.
For larger projects, consider milestone billing: 30% deposit, 30% at midpoint, 40% on completion. This keeps cash flowing throughout the project.
The CFO Perspective
I had a client who ran a renovation business. No deposits. He'd start a $25,000 job with nothing upfront, buy $8,000 in materials out of pocket, and invoice at the end. One client ghosted him after the framing was done. He was out $11,000 in materials and labor with no recourse beyond small claims court.
We implemented a simple policy: 40% deposit to start, 30% at rough-in, 30% on completion. His cash flow stabilized within two months. He hasn't been stiffed since.
As the old business saying goes, "Revenue is vanity, profit is sanity, but cash is king." Deposits put cash in your hand before you spend it.
Handling Pushback
Some clients will question the deposit. That's fine. Explain what it covers: your time, materials, scheduling. Most reasonable clients understand. If someone refuses to put any money down before you start working, that's a red flag.
What To Do About It
- Set a standard deposit policy. 25% to 50% for most service businesses. Put it in your contract template.
- Define clear payment terms. Due dates, accepted methods, late fees. Remove ambiguity.
- Make deposits non-refundable once work begins. State this explicitly in your agreement.
- Use invoicing software. Wave, QuickBooks, or FreshBooks. Automate reminders and staged billing.
- Never start work without financial commitment. Not a handshake. Not a verbal "yes." A payment.
The Bottom Line
Deposits aren't aggressive. They're professional. They protect your time, cover your costs, and build a healthier business. If you're chasing payments more than once a month, your deposit policy needs work. If you need help setting up payment terms that protect your cash flow, book a free call.
Next step: run your numbers through the free CFO scorecard.
Frequently Asked Questions
- How much deposit should I charge clients?
- Most service businesses charge 25% to 50% upfront. Smaller projects or repeat clients may warrant less. Larger engagements or new clients should require more. The deposit should cover your initial costs and time commitment.
- Should deposits be refundable or non-refundable?
- For most service businesses, deposits should be non-refundable once work has begun or time has been reserved. Make this clear in your contract. If you haven't started work, consider a partial refund as goodwill.
- What if a client refuses to pay a deposit?
- A client who refuses to pay any deposit is a red flag. It may indicate cash flow problems or lack of commitment. Consider a smaller initial payment or milestone-based billing, but never start work with zero financial commitment.
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