Deposits and down payments

An upfront payment reduces the materials and other costs you fund before the customer’s next payment. Size it from those costs, then check the legal limit for the project. Put the amount, due date, credit against the contract price and cancellation terms in writing before approval.

Deposit, down payment, retainer: three different asks

These labels are used differently across businesses and contracts. Write what the payment covers, whether it reduces the balance, and when a refund is due; the label alone does not decide those questions.

Use first payment or down payment when you mean an installment of the contract price. State refund and cancellation terms separately, including for special-order materials.

Size the ask to what leaves your account first

A percentage pulled off the contract total is a guess. Work from the hole in your bank balance instead:

Upfront ask = materials you must buy before the next payment
            + mobilization costs (permit, dumpster, rental, sub's first draw)
            + payroll you will cover before the next payment
            - anything your suppliers will carry on 30-day terms

An open account at the supply house with net-30 terms keeps the material cost out of your bank account for a month, which can cut the upfront ask sharply on a material-heavy job. If you are paying cash or card at the counter, you are the one extending credit, and the deposit has to reflect that.

The math on a $9,400 deck

This hypothetical $9,400 deck uses invented costs to illustrate the calculation. Replace them with supplier quotes, rental charges and the permit fee for your project.

That is 43% of a $9,400 contract, spent before a single board is cut. A 30% customer payment is $2,820, leaving $1,250 for you to fund. A 45% payment would cover these initial costs, but may exceed the legal limit. This calculation measures your funding gap; it does not establish a permitted down payment.

Add labor and the gap can grow beyond a sensible first payment. That is the point where a bigger down payment is the wrong tool and a mid-job payment tied to a milestone is the right one.

When does a job need an upfront payment?

Where the law permits an upfront payment, size it to your supplier terms and costs before the next draw. There is no percentage that fits every job.

The threshold is not job size on its own. It is the first job where you buy something you cannot return. A same-day service call with stocked parts may need no deposit; custom materials may justify a separate first payment where state law allows it.

Your state may cap what you can collect

There is no national rule here. Some states leave the down payment entirely to the contract; others cap it by statute, as a percentage, a flat dollar figure, or both. A few also control how the money must be held. Residential home-improvement limits may differ from commercial-payment rules; check the rule for the actual project.

For example, California’s CSLB limits home-improvement down payments to the lesser of $1,000 or 10%, with no exception for special-order materials. Rules turn on the project, license type, and contract amount. Check your own state's contractor licensing board or consumer-protection office. Never treat a percentage online as permission.

Invoicing it so the final bill still reconciles

Bill the down payment as its own invoice with its own invoice number, and reference the estimate in the description — "Down payment, 35% of accepted estimate #2026-114" — so both documents are findable later. The mechanics below work at any percentage; 35% is just the figure in this example, and yours is whatever your state and your signed contract allow.

Give it a short, concrete due date. The leverage on a down payment is not a late fee; it is the schedule. If that is the arrangement you choose, state that material ordering and crew booking follow payment clearing, subject to the agreed schedule, cancellation rights and local payment rules. Put that condition in the estimate before approval.

On the final invoice, show the whole contract price and credit the payment as a line item. Do not simply bill the remaining 65% as a standalone figure — customers reconcile against the number they approved, and a bare balance invites a phone call.

Sales tax is left out above for clarity, and it is the one piece you should not improvise. Whether tax on an advance payment is due when you receive the money or when the work is complete depends on your state, and on whether your labor is taxable at all. Ask your state revenue department or your accountant how to handle it on the deposit invoice specifically.

If the job cancels, whose money is it?

First, check whether the FTC Cooling-Off Rule or a state cancellation right applies when you take the money. The answer can depend on how and where the sale was made. Write cancellation terms around actual nonrecoverable costs, such as a restocking fee, custom fabrication, or a permit, and have them reviewed locally rather than declaring every payment nonrefundable.

Where the number lives before it becomes an invoice

Whatever percentage you land on, the customer should see it before they agree to the job. A down payment that first appears in an invoice reads like the terms changed. Write the split into the estimate’s payment terms in DoneQuote and the figure you worked out from your own material exposure is the figure the customer approves — so raising the first invoice means copying a number you both already signed off on, instead of negotiating it after the lumber is on the truck.