Why ask for a deposit
On a larger project you buy materials, reserve time or turn down other work. A deposit reduces your risk if the client pulls out, keeps your cash flow healthy and makes the agreement more serious for both sides. For a small or recurring service a deposit is often not needed.
Business clients are familiar with deposits and rarely object, especially if you give the reason. Present it as your company's standard way of working, for example: you start as soon as the deposit has arrived, so that you can reserve time for the client. That is an ordinary business arrangement.
A usual percentage
There is no legal percentage. Many businesses ask for somewhere between 30 and 50 per cent on a project, depending on their upfront costs. On a long engagement you would rather agree several instalments, tied to phases or a date. State the percentage and the amount in your quote, so the client is not surprised.
If you ask for more than usual, explain why: for example, you have to order custom materials. The higher the deposit, the more important it is that the client can trust you to deliver.
How to put it in your quote
State in the quote how large the deposit is, when your client has to pay and that you start only after receiving it. Also say what happens if the client cancels: do you keep the deposit or refund part of it? One clear sentence prevents arguments later. General information on building a quote is in the guide on how to write a good quote.
Also give your client an idea of what they get for the deposit: the start of the project, reserved time or ordered materials. A deposit feels fairer when the client sees what it buys. Also state the date you can start, counted from the receipt of the deposit.
Deposits and VAT
You generally charge ordinary VAT on a deposit. The VAT is then due in the period in which you issue the invoice for the deposit, or earlier if you receive the money earlier. So it is not only at the final invoice. On the deposit invoice you put the date of payment or of the agreement.
On the final invoice you show the total of the job and deduct the deposit, so the client pays only the remainder. How best to book this in your accounts is something to discuss with your accountant. See also what an invoice must contain.
An example with figures
An invented job of € 8,000 excluding VAT, with a 30 per cent deposit:
- Deposit of 30 per cent: € 2,400 plus € 504 VAT (21 per cent) is € 2,904
- Total job: € 8,000 plus € 1,680 VAT is € 9,680
- On the final invoice you deduct the advance: € 9,680 minus € 2,904 is € 6,776 payable
- VAT in the return: € 504 in the quarter of the deposit invoice, the remaining € 1,176 in the quarter of the final invoice
Several instalments on a longer project
On an engagement of several months a single deposit is often too little. Instalments spread the risk: you invoice per phase or on fixed dates. A common split is 40 per cent on acceptance, 40 per cent halfway and 20 per cent after delivery. On a job of € 6,000 excluding VAT that is € 2,400, € 2,400 and € 1,200.
Tie instalments to something your client can verify, such as a delivered design or a date. That prevents arguments about whether an instalment is due yet. State the payment term per invoice. Between businesses in the Netherlands, 30 days generally applies if you agree nothing else. For a deposit a shorter term is usual, for example 7 or 14 days.
If the client drops out
Say in advance what happens to the deposit if the project does not go ahead. Many businesses keep part of it for costs and hours already spent and refund the rest. Issue a Credit noteA document that cancels an earlier invoice in full or in part, for example after a mistake or a returned delivery.
Read more for the part you refund, so the invoice and the VAT are correct again.
If your client does not pay the deposit, you do not start either. Send a Payment reminderA friendly message that an invoice is still open. If payment stays out, a firmer demand for payment follows.
Read more once or twice and call if it stays quiet. Reminding in good time is usually enough.
Common mistakes
- Agreeing only verbally, and later being unable to prove anything.
- Starting before the deposit has arrived.
- Forgetting to report the VAT on the deposit.
- Not offsetting the deposit on the final invoice.
- No agreement on cancelling or refunding.
This is general information. For the correct treatment of deposits and VAT in your situation, ask an accountant or the Dutch Tax Authority.
Step by step
- Choose a percentage and a term that fit your upfront costs.
- Put it in your quote, with the amount, the payment term and the cancellation terms.
- Let your client accept.
- Send the deposit invoice and watch for the payment.
- Start after receipt and offset the advance on the final invoice.
Frequently asked questions
May I ask for a deposit?
Yes, if you agree it with your client, preferably in your quote. There is no legal percentage.
Is a deposit an advance payment or a security deposit?
A deposit is part of the price that you are paid in advance. A security deposit is a guarantee that you repay later. Both are possible, but be clear about which you mean.
Do I charge VAT on a deposit?
Generally yes. The VAT is due as soon as you issue the invoice or receive the payment. Check the current rules or ask your accountant.
What if the client cancels?
That depends on what you agreed. Put it in the quote or the terms, and ask a lawyer if you are unsure.
This explanation is general information, not legal, tax or accounting advice. Rules change and your situation may differ. If in doubt, ask your accountant or adviser, or check with the Dutch Tax Administration (Belastingdienst) or the Chamber of Commerce (KvK).
