Deposits, Payment Terms and Collecting Money Faster

Part B: Understand the Money

Many owners feel awkward asking for money up front. It seems pushy, or like a sign you don’t trust the customer. So they do the work, send an invoice, and wait. Then they wait some more, and the awkwardness of asking early gets replaced by the far worse awkwardness of chasing late.

I would ask you to look at it differently. Think of a deposit as both sides being serious. The customer commits, you commit, and neither of you is carrying all the risk. Which is more uncomfortable, a clear conversation before the job, or a tense one after?

Deposits and progress payments

A deposit is money you collect before you start. Its most important job is covering the costs you have to spend first, usually materials. It also filters out casual inquiries, because a customer who pays a deposit has decided.

Here is a labelled hypothetical. Say a job is priced at $12,000 and materials will cost $3,000. If you ask for a 30% deposit, that is $3,600, which more than covers the materials before you have spent a penny of your own. The rest of the risk is much smaller, and the job funds itself from the start. Check your state before you pick the number, though, because some states cap how much deposit a contractor can take on home improvement work.

For bigger or longer projects, use progress payments: money due at set stages rather than all at the end. A common shape is one payment at signing, one at a midpoint milestone, and one at completion. Tie each payment to something the customer can see, such as “materials delivered” or “rough work complete,” not to a vague date. On that same $12,000 job, 30%, 40% and 30% works out to $3,600, $4,800 and $3,600, which adds up to $12,000. The gap you finance shrinks from the whole job to one small slice.

Restaurants and retail have their own versions. A caterer can take a deposit to hold the date. A shop can take payment when an order is placed, especially for custom items. The principle is the same: get paid closer to when you spend.

Payment terms: say it clearly, early, in writing

Payment terms are the rules for when and how you get paid. “Due on receipt” means now. “Net 30” means within 30 days of the invoice. Every extra day you allow is a day you fund the customer, so the terms you choose are a real business decision, not a formality. Shorter terms are usually better for your cash, and you can offer more time to customers only when it is worth it. Some commercial customers will push back on shorter terms, since they pay on net 30 as a matter of routine, so decide ahead of time what you will do if they do.

What matters most is that the customer knows the terms before the work starts, not when the invoice arrives. Put the deposit, the schedule, the due dates and how you accept payment on the quote or agreement, in plain language. Then make paying easy: a card link, a bank transfer, or a clear mailing address. If paying takes effort, it gets postponed.

Then send invoices the same day the work is finished, or at the milestone, not at the end of the month when you finally sit down to do paperwork. We see contractors lose weeks of cash simply because the invoice went out late. Each of those days is money waiting on your desk.

A calm follow-up routine

Collecting is a routine, not a confrontation. Decide in advance what happens and when, so you are never deciding in the middle of an uncomfortable moment. For example: a friendly reminder a few days before the due date, a short note on the day it is due, a phone call a few days after, and a firmer written message after that. The tone stays polite. The pattern stays consistent.

A lot of late payments are just an invoice buried in someone’s inbox. A prompt, friendly nudge fixes a surprising number of them. What it does not fix is a customer with a habit of paying late, and your forecast will tell you who that is. For those customers, shorter terms or a bigger deposit next time is the answer, not more patience.

Everything here feeds your forecast. If you decide customers will pay in 15 days instead of 45, that changes every month in Building a 12-Month Cash-Flow Forecast. To see why the gap matters so much, read Working Capital and the Cash-Conversion Cycle.

Your next step

Choose one of your standard offers and rewrite its payment terms: the deposit amount, the milestones if there are any, the due date, and how the customer can pay. Write your follow-up steps on one page, and use the deposit and terms on your very next quote.

What it costs

Two to three hours to work out your terms, write them in plain language and set up an easy way to get paid. An attorney’s review of your template will cost you something, and the amount depends on where you live and how much you ask them to look at, so get a quote first. After that, the routine takes a few minutes per invoice. Expect a customer or two to push back at first, and decide now what you will do when they do.