Deposits for service businesses: how much to ask for and when

If you're doing work that takes real time or money up front, you should probably be asking for a deposit. Many service businesses ask for somewhere between 20% and 50%, depending on how much they commit before the client sees anything, and how big the job is.

A deposit protects your cash flow, filters out clients who aren't serious, and makes it far less likely you'll spend a week on work that never gets paid for.

Why deposits make sense

Cash flow. Service businesses often carry costs for weeks before invoicing: wages, travel, subcontractors, materials. A deposit covers some of that.

Commitment. A client who has paid something is invested. They're more likely to provide information on time and less likely to disappear halfway through.

Protection. If a client pulls out after you've started, a deposit means you're not left with nothing for the work done.

It's normal. In many industries clients expect a deposit, and asking for one signals that you run a proper business.

How much to ask for

There's no single right answer, but these are common approaches:

• Small, quick jobs: often no deposit, or payment in full up front for very small work.
• Medium jobs: 25% to 50% up front, balance on completion.
• Large or long jobs: a deposit followed by progress payments at agreed milestones.
• Jobs with big up-front costs: enough to cover what you'll spend before the client sees results, such as materials, subcontractors or third-party fees.

Think about your risk. How much work do you do before the client sees anything? How much would you lose if they walked away? The higher the risk, the higher the deposit.

When to ask

The best time to ask is at the point of acceptance. Put the deposit on the quote, so the client knows before they say yes. Then issue the deposit invoice straight away, while they're committed and motivated.

Make it clear the work starts, or the job is booked in, once the deposit is paid. That gives the client a reason to pay promptly.

How to word it

Keep it simple and matter-of-fact:

A deposit of 30% ($1,950 including GST) is payable on acceptance. Work will be scheduled once the deposit is received. The balance is payable on completion.

No apologies needed. If you're clear and consistent, most clients won't think twice.

Is a deposit refundable?

Decide this up front and put it in your terms. Common approaches are:

• refundable if the client cancels before work starts
• partly refundable, minus work already done
• non-refundable once work has started

Whatever you choose, be clear and fair. Australian Consumer Law protects consumers from unfair contract terms, and a deposit that's out of proportion to your actual loss could be challenged. If you're unsure, get advice for your situation.

GST on deposits: the basics

If you're registered for GST, a deposit that's a part-payment for the work is generally treated as payment for your service. That means GST may be payable when you receive it or when you issue an invoice for it, depending on whether you account for GST on a cash or accruals basis.

Security deposits, where the money is held as a guarantee and returned if all goes well, are treated differently. GST generally applies only if the deposit is forfeited or applied to the price.

The ATO has detailed guidance on this, and your accountant can confirm how it applies to your business. The practical point is that your deposit invoice should show GST clearly, just like any other tax invoice.

Make it easy to pay

The easier a deposit is to pay, the faster it arrives. Online payment links, clear bank details and an invoice that arrives the moment the quote is accepted all help.

cyrenRPM turns accepted quotes into invoices without re-entering anything, connects with Stripe for online payments and Xero for your accounts, and shows when an invoice has been opened. That keeps the gap between "yes" and "paid" as short as possible.