Why stage payments
Staged billing helps you cover costs, tests the customer’s willingness to pay, and limits what you lose if a project stops. It also helps the customer by tying payments to progress.
Common models
| Model | Example | Good for |
|---|---|---|
| Deposit + balance | 30–50% upfront, rest on delivery | Short projects, products |
| Milestones | Design, build, launch at 30/40/30 | Multi-stage projects |
| Time-based | Invoice monthly for hours worked | Ongoing work. See the timesheet invoice |
| Retainer | Fixed fee per month | Continuing support |
| Progress claims | Percentage complete certified | Construction and trades |
How to set it up
- Agree the schedule in the quote or contract, with exact triggers: “on approval of designs”, not “when it feels done”.
- Send a deposit invoice (or a pro-forma if you need one for approval) before starting.
- Invoice each milestone as soon as it is reached, with the milestone name on the line.
- On the final invoice, show the total contract value, previous payments and the balance. Reference earlier invoice numbers.
- If the scope changes, issue a change order and invoice the difference.
Tax on advance payments
In VAT and GST systems, receiving a payment in advance can trigger the tax point for that amount, so you may have to issue a tax invoice for the deposit and account for tax in that period. In the US, sales tax depends on the state, and income tax depends on your accounting method (cash or accrual). Speak to your accountant and check your authority’s guidance. See pro-forma vs tax invoice.
Refundable or not
Say in writing whether a deposit is refundable and under what conditions, and what it covers. Many places have consumer protection rules on deposits, so avoid vague terms. A “booking fee” that secures your time is different from a prepayment for goods.
Frequently asked questions
How big should a deposit be?
Commonly 25–50%, depending on your costs and risk. Cover materials or third-party costs first.
Do I number a deposit invoice like any other?
If it is a tax invoice, yes, in your normal series. A pro-forma should use a separate series.
What if the client cancels?
Your contract should say what happens to the deposit and work done. Without it, you may need to negotiate or use small-claims routes.
Can I invoice before delivery?
Yes, if it is agreed. The terms should be clear.
What is a retention?
Common in construction: a percentage of each payment held back until the project is complete.
Related topics
- deposit invoice
- milestone billing
- progress invoice
- advance payment
- staged payments
- retainer
- down payment