Glossary
What is a deposit invoice?
A deposit invoice asks a client for part of the payment before work begins. See how it works, how to size the deposit, and how to apply it to the final bill.
Updated · By PayToMe Editorial
A deposit invoice is an invoice that asks a client to pay part of the total price before you start work. It secures the job, covers early costs and is later subtracted from the final invoice, so the client never pays more than the agreed price.
How it works
Instead of billing everything at the end, you split the price. The first invoice is the deposit. The final invoice shows the full price, the deposit already paid, and the balance still due.
- Agree the price and deposit. Put the total and deposit percentage in your quote or contract.
- Send the deposit invoice. Label it clearly as a deposit and reference the project.
- Start when it is paid. Many businesses only schedule work once the deposit has arrived.
- Issue the final invoice. Show the full price, subtract the deposit and bill the remaining balance.
Deposits help your cash flow and lower the risk of bad debt. They also show the client is committed. For long projects, a deposit is often followed by progress billing at milestones. A retainer is similar but usually covers ongoing work rather than one project.
Example
A carpenter agrees to build custom shelving for $5,000.00, with a 30% deposit.
If sales tax applies to your work, treat it consistently on both invoices and check your state’s rules. The sales tax calculator can help with the arithmetic.
Tips
- Use the word “deposit” and the project name so the client knows what it is for.
- Put the refund terms in writing before you invoice.
- Always show the deposit as a credit on the final invoice.
- Keep a record of the deposit invoice number so the two invoices link together.
You can build both invoices in the free invoice generator. PayToMe is in public beta: estimates, invoices and online payments, including partial payments, are live. Sign in to PayToMe to try them.
Related terms
- Progress billing: invoicing in stages as work advances.
- Retainer: an advance for ongoing services.
- Bad debt: what deposits help you avoid.
- Purchase order: a buyer’s order that may trigger a deposit.