How to Invoice a Deposit

A deposit invoice and a final balance invoice are two separate invoices, each with its own unique number, its own issue date, and its own due date. If the deposit invoice is INV-014, issued when the client signs and due on receipt, the final invoice might be INV-021, issued on delivery and due Net 14. Each one is a complete, standalone request for payment. For goods orders, some sellers instead collect the prepayment against a proforma invoice and issue the full invoice at delivery — this guide covers the deposit-invoice route, which is the norm for services and project work.

The common shortcut — one invoice for the full fee with a note saying '50% now, 50% on completion' — causes problems. Your books show the full amount owed from day one even though half of it isn't due yet, the client's accounts payable system may have no clean way to part-pay a single bill, and in tax-registered businesses it can misstate when tax became due. Two invoices keep every number tied to a real payment event.

For project work, 30-50% of the agreed fee is the common range. On a $4,000 project that's $1,200 to $2,000 — enough to cover your early costs and prove the client is committed, without asking them to fund the whole job on trust.

Go higher when the work has no value to anyone but this client. Made-to-order goods, custom fabrication, and one-off commissions can justify 50% or even 100% up front, because if the client walks away you can't resell the result. Go lower — 10-20% — on long engagements billed in stages, where each stage invoice already limits your exposure.

Make the deposit due before work starts and say so plainly: 'due on receipt' or 'due within 7 days of signing' both work. Then hold the start date until the money actually arrives — a signed contract without a paid deposit is exactly the situation the deposit exists to prevent.

The line item should say what the payment is, what percentage it represents, and what total it's calculated from: 'Deposit: 50% of agreed project fee of $4,000' with a line amount of $2,000. A bare 'Deposit — $2,000' forces the client's bookkeeper to guess, and months later nobody remembers whether $2,000 was half the job or all of it.

Reference the agreement the deposit belongs to — a quote number, proposal date, or contract title — somewhere on the invoice. That link is what lets both sides reconcile the deposit against the final bill without digging through old email.

The final invoice shows the whole job at full value, then subtracts what has already been paid. List the work as normal line items, subtotal to the full $4,000, then add a negative line: 'Less deposit paid 12 June (INV-014): -$2,000'. The balance due is $2,000, and the arithmetic is visible on the page — the client can see exactly how the number was reached.

Always reference the deposit invoice number and the date the deposit was paid. If the deposit invoice charged VAT, GST, or sales tax, be consistent: either each invoice charges tax on its own amount — tax on $2,000 then, tax on $2,000 now — or the final invoice shows the full fee plus full tax and deducts the deposit gross of its tax. Mix the two approaches and the balance comes out wrong by exactly the tax on the deposit — a $200 hole at a 10% rate, and a week of reconciliation emails.

In many VAT and GST systems, taking a deposit creates a tax point: the tax on that money becomes due when you receive it, not when you finish the work. That means the deposit invoice must charge VAT or GST on the deposit amount, and you may need to remit that tax in the reporting period the payment lands in — even if the project won't be delivered for months.

This is not universal. Some sales tax regimes tax the transaction at delivery, and rules can differ for goods versus services and for refundable versus non-refundable amounts. If you're tax-registered, check the prepayment rules where you're registered before the deposit invoice goes out, and make sure it meets your local requirements for a full tax invoice — tax number, rate, and tax amount shown.

Decide whether the deposit is refundable, partially refundable, or non-refundable before you invoice it, and put that policy in the contract or proposal the client accepts — not just on the invoice. The invoice can carry a short note, such as 'Non-refundable deposit per signed proposal of 3 May', but the agreement the client accepted is what actually governs.

Be careful with 'non-refundable'. In many countries, consumer protection rules limit what you can keep, and a deposit far larger than your actual losses may not hold up if challenged. A defensible policy usually ties what you keep to work done and costs incurred — for example, keeping the deposit if the client cancels within 14 days of the start date, when the slot can't be refilled.

A deposit is an advance on one specific job: it's invoiced once, before the work, and credited against that job's final invoice. A retainer is a recurring fee — often monthly — that pays for availability or a set amount of capacity, and it's invoiced on its own cycle. Some retainers are drawn down against work billed; many are simply the price of keeping you on call.

The practical difference shows up in the paperwork. A deposit reappears as a deduction on the job's final invoice; a retainer usually never does, because each month stands alone. If you're billing a client the same amount every month to stay available, invoice it as a retainer, not as a rolling series of deposits.