Deposits and Stage Payments

What a payment structure is for

Not squeezing money out early. Keeping the amount outstanding roughly matched to the work completed.

A business that has done eighty percent of a job and been paid twenty percent is financing the customer, which is a different business from the one it intended to run.

The reverse is also unfair, and it is why customers resist large deposits: paying substantially ahead of delivery puts their money at risk.

A good structure keeps both exposures small at every point, which is what makes it acceptable to both sides.

The deposit

What it is actually for, which should be stated.

Commitment. A booked slot is a slot not offered to anybody else, and a deposit means a cancellation costs the customer something.

Materials. Where you are buying items specific to the job, particularly anything custom or non-returnable, the deposit should cover them.

Design or preparation work, where substantial effort happens before anything visible does.

The size should follow the reason. A deposit covering materials is justifiable at whatever those cost; a deposit that is simply a third of everything is harder to defend and more likely to be resisted.

Explaining what the deposit covers converts it from a demand into a term, which is most of the resistance removed.

Stage payments

For anything running more than a few days.

Payments tied to milestones rather than to dates, so each is triggered by something the customer can see: materials delivered, a phase completed, an inspection passed.

Milestones are better than calendar dates because a delay does not create an awkward invoice for work not yet done, and because the customer understands what they are paying for.

Each stage should be small enough that if the relationship failed at that point, neither party has lost much.

For longer projects, invoicing at each stage rather than accumulating is also what keeps the final figure from being a shock.

The final payment

Where the trouble concentrates.

A large final payment is the one that gets delayed, disputed, or used as leverage over snags. That is not usually dishonesty; it is the only leverage the customer has left, and a large balance makes using it worthwhile.

Keeping the final payment small removes the incentive. If the last stage is a modest proportion, holding it over a minor defect is not worth the friction.

What should trigger it: completion as defined in the scope, rather than the customer's satisfaction, which is not a definable standard and which invites indefinite deferral.

A short defects period, where you return to address anything found, is a better arrangement than withholding, because it gives the customer the assurance without holding your money.

Making it enforceable in practice

Practical rather than legal, since most small businesses will not litigate.

• Put the schedule in writing before starting, in the quote.
• Invoice promptly at each stage, since a late invoice signals the date is flexible.
• State the terms on every invoice, including when payment is due.
• Follow up on day one after a due date, politely, since delay compounds.
• Do not start the next stage until the previous one is paid, which is the actual mechanism.

That last point is what makes stage payments work. A business that continues working through unpaid stages has converted its structure into a suggestion.

Stopping is uncomfortable and it is considerably less uncomfortable than the alternative, and doing it early in a project rather than late is what keeps the exposure small.

Payment methods

A practical point with a real effect on collection.

Making payment easy shortens the delay. A customer who has to arrange a transfer manually pays later than one who can pay from an invoice.

Card payments cost a percentage and frequently pay for themselves in reduced delay, particularly on smaller amounts.

Cheques and cash are slower, harder to reconcile, and for larger amounts carry their own risks, including a cheque that clears and is later reversed.

What consumer protection requires

Worth knowing since it constrains the structure in some cases.

Provincial consumer protection legislation regulates certain contracts, including some door-to-door and distance sales, and there are rules in some provinces limiting deposits or requiring particular terms for prescribed contract types, along with cancellation rights.

Home renovation contracts above certain values are also regulated in some provinces with specific requirements.

Which means a business setting deposit terms should confirm what applies to its own work and province rather than adopting whatever a competitor does, and the applicable consumer protection authority is the reference.

The structure that usually works

A deposit covering commitment and materials, one or more stage payments tied to visible milestones, and a small balance on completion with a defects period.

Written into the quote, explained once, and applied consistently, which is the same clarity that prevents disputes about the work itself, as set out in writing a scope that prevents arguments.

Frequently asked questions

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