Deposit invoice: bill upfront, then invoice the balance

How to agree, invoice and receipt a deposit, two ways to bill the balance, when tax falls due on a deposit, and a worked 30% example that adds up.

The short answer

A deposit invoice asks for part of the price before the work starts or the goods ship. When the job is done, a final invoice bills the rest, and together the two add up to the agreed price. Agree the deposit in writing first, give a receipt when it arrives, and make the final invoice show how the balance was worked out.

Tax can fall due on a deposit when it is received, not only at the end. In the UK, for example, a payment received before the supply generally creates a tax point for the amount received, so the deposit invoice carries VAT on its share.

Agree the deposit before you invoice it

Put the deposit in the quotation’s terms and in the contract: the percentage or amount, when it is due, what it secures, and what happens to it if the customer cancels. A deposit that appears for the first time on an invoice is a request the customer never agreed to.

Say whether it is refundable and on what terms. If you sell to consumers, check the consumer rules where you sell before you call any part of a payment non-refundable.

  • The deposit as a percentage of the price, or as a fixed amount.
  • The date it is due, and whether work starts only once it arrives.
  • Whether tax is charged on it, and at what rate.
  • What happens to it if either side cancels before the work is done.

Two ways to bill the balance

You can issue the final invoice for the full price and show the deposit already invoiced as a deduction, or issue it for the balance only and refer to the deposit invoice. Both are sound if the numbers trace back: the customer must be able to see that deposit plus balance equals the agreed price, with no stage billed twice.

Whichever you choose, quote the deposit invoice’s number and the date the deposit was paid. If the price changed during the job, explain the change on the final invoice rather than quietly adjusting the balance.

Worked example: a website project with a 30% deposit

A studio agrees to build a website for 4,000 plus 10% tax, 4,400 in all, with 30% of the price due before work starts. The figures are illustrative. The deposit invoice INV-101 is issued on signing; the final invoice INV-118 bills the balance and names INV-101.

  • Deposit invoice INV-101: 30% of 4,000 = 1,200, plus 10% tax of 120, total 1,320.
  • Final invoice INV-118: the balance 4,000 − 1,200 = 2,800, plus 10% tax of 280, total 3,080.
  • Check: 1,320 + 3,080 = 4,400, the agreed price including tax.
  • Receipts: one for 1,320 when the deposit arrives, one for 3,080 when the balance arrives.

When tax falls due on a deposit

Each tax system decides when a deposit becomes taxable. GOV.UK’s guidance on deposits says that, apart from security deposits, a deposit that will form part of the price creates a tax point when you receive it or issue a VAT invoice for it, whichever comes first. A refundable security deposit, held against damage or loss, is treated differently.

Other countries have their own timing rules, and a business-to-business sale may need a tax document at the deposit stage. Check the rule where the tax is due before you decide whether the deposit invoice carries tax.

Doing it in QuoteBill

From a signed e-contract with a price schedule, choose “Make an invoice from this contract”, then “Part of it” and enter 30 in “Share of the price (%)”: the invoice carries the contract’s reference and its tax adds up to the contract’s own figures. From an accepted quotation, “Make an invoice” creates a separate draft; replace its lines with one deposit line that names the quotation.

When the deposit arrives, make a receipt from the deposit invoice. For the final invoice, write the balance as its own line, for example “Balance of website project: 4,000 less the deposit on INV-101”. QuoteBill does not deduct a deposit by itself and has no negative lines, so the wording on the line and in “Notes” carries the explanation.

Check before you send the final invoice

Line the two invoices up side by side:

  • Deposit plus balance equals the agreed price, tax included.
  • The final invoice quotes the deposit invoice’s number and the date it was paid.
  • Tax on the deposit was not charged a second time on the final invoice.
  • Any change to the price is explained, not hidden in the balance.
  • A receipt exists for each amount received.

Questions people ask

Is a deposit invoice the same as a proforma invoice? No. A proforma describes a sale before it is final and is not a demand for payment in the tax sense. A deposit invoice is a real invoice for part of the price, and some customers need one before they can pay.

Should I send a receipt for a deposit? Yes. It shows the amount received, the date and the invoice it pays, and it marks the payment as a part payment.

Can I keep the deposit if the customer cancels? Only as far as your contract and the law that applies allow. Write the cancellation terms before the deposit is paid, not afterwards.

Does the deposit invoice need tax on it? It does wherever tax falls due when the deposit is received, as in the UK for most deposits. Check the rule where you trade.

Sources

Next step: get it signed as an e-contract

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