Deposit invoices explained, with a worked example

When should you ask for a deposit?

Ask for a deposit when you spend your own money or turn away other work before the client pays anything. Custom orders, materials bought for one job, booked dates and long projects are the usual cases. A deposit covers your early costs and shows the client is committed.

Some practical signals that a deposit makes sense:

• You buy materials for one client. Paint, timber, fabric or parts you cannot return or reuse.
• You hold a date. A catering booking or a photography shoot blocks a day you could sell to someone else.
• The job runs for weeks. A website build or a renovation means a long gap before the final bill.
• The client is new. You have no payment history with them yet.
• The work is made to order. Signs, furniture or printed items have little value to anyone else.

For small repeat jobs with clients who pay on time, a deposit can add paperwork without much benefit. Clear payment terms on the invoice often do the job instead.

How much deposit is reasonable?

There is no single right figure. A common approach is a share of the job, such as 25, 30 or 50 percent, or a fixed amount that covers materials. Choose a number you can explain: what it pays for, and what happens to it if the client cancels.

Three common ways to set it:

Write the deposit rule into your quote, not only the invoice. If you quote with WhizQuote, put the deposit amount and the cancellation terms in the quote notes so the client agrees to them before work starts. Our guide to late payment fees covers what to add if the balance is paid late.

What goes on a deposit invoice?

A deposit invoice carries everything a normal invoice has, plus a clear link to the job. Show your business details, the client, a unique number, the date, a description that says it is a deposit, the amount, any tax and the due date. Reference the quote number so both sides can match it later.

Checklist before you send it:

• Your business name, address and tax ID if you are registered for GST, VAT or sales tax
• The client’s name and address
• A new invoice number in your normal series (see how to number invoices)
• Issue date and due date, often “due before work starts” or a fixed date
• A line such as “Deposit, 30% of quote Q-2047, website redesign”
• The deposit amount, the tax on it if you charge tax, and the total due
• The full job price for reference, so the client sees what remains
• How to pay and what happens to the deposit if the job is cancelled

The general rules for what to include on an invoice still apply. A deposit is not a different kind of document in most places, just an invoice for part of the price.

Worked example: deposit, then final bill

Here is one job billed in two steps. A designer quotes $8,000 plus 10% tax for a website. The client pays a 30% deposit first, then the balance at launch. The tax rate is an example only; use the rate that applies to you.

Step 1: the deposit request (INV-0141)

Step 2: the final invoice (INV-0158)

Check the math: $2,640.00 plus $6,160.00 equals $8,800.00, the full price with tax. Tax charged across both invoices is $240.00 plus $560.00, which is $800.00, so nothing is taxed twice.

Two ways to lay out the final invoice

You can show the final bill in two honest ways. Either list the full job and subtract the deposit, as in the example, or invoice only the remaining part of the work and mention the deposit in the notes. Both reach the same balance. Pick one and use it every time.

• Full price less deposit. The client sees the whole job on one page. This suits bigger projects and clients with an accounts team.
• Balance only. Lines read “Balance of website redesign, 70% of Q-2047: $5,600.00”, tax $560.00, total $6,160.00, with a note “Deposit of $2,640.00 received on INV-0141”. This is simple in any tool, including our free invoice generator.

Avoid entering the deposit as a discount. A discount lowers the taxable price, so the tax on the final bill comes out wrong and your records no longer match what the client paid.

Does tax apply to the deposit?

Often yes. In many GST and VAT systems, receiving a payment before the work is done can make tax due on that part straight away, rather than when the final bill goes out. The exact rule depends on your country and registration, so check your tax authority’s guidance before you choose a layout.

A few things to keep in mind:

• Some countries ask for the date of a payment on account on the invoice. Ireland’s Revenue lists “date of any payment on account, if different from the invoice date” among the details for a VAT invoice.
• Refundable security deposits, like a bond held against damage, can be treated differently from a part payment of the price.
• If you are not registered for tax, leave tax off both invoices.

Our guides on adding VAT to an invoice and sales tax on US invoices explain the tax lines in more detail.

Deposit invoice or proforma invoice?

A proforma invoice is a preview of a future bill. It shows the client what they will owe, but it is usually not a demand for payment and not a tax document. A deposit invoice is a real invoice for part of the price. If you want money now, send a real invoice.

Some businesses send a proforma first so the client can approve the full amount, then the deposit bill once the client says yes. That works, as long as only the real invoices carry numbers from your main series. Our comparison of proforma and tax invoices covers the difference, and you can make one with the proforma invoice maker.

If the job is cancelled after you invoiced the deposit, and you refund some or all of it, issue a credit note against the deposit bill rather than deleting it.