Deposits and Staged Payments: Funding the Work
Why you should never fund a customer's project out of your own pocket, how to structure deposits and milestones, and how to have the conversation without losing the job.
Written by Daniel, peer-reviewed by Marcus
Last reviewed:
Published:
Who this is for: Service businesses, tradespeople, and consultants who have large up-front costs or long project timelines.
The short answer
You are a business, not a bank
Every day that you work on a project without being paid is a day that you are lending the customer money at 0% interest. If you also have to buy materials or pay subcontractors up front, you are actively subsidising the customer's business from your own cash reserves. This is 'working capital risk', and it's the primary reason many profitable service businesses run out of money.
Deposits and staged payments aren't just about 'getting the money early'. They are about risk distribution. By taking a deposit, you ensure the customer is committed and you cover your immediate out-of-pocket costs. By staging payments, you ensure that the amount of work you have delivered never significantly exceeds the amount you have been paid.
The standard structures
There is no single rule for how to stage payments, but three common models cover most situations. The 'Bookend' model (50% up front, 50% on completion) works well for shorter jobs with few external costs. The 'Milestone' model (e.g., 30% deposit, 40% at halfway, 30% on completion) is better for projects lasting more than a few weeks. The 'Materials Plus' model (deposit covering 100% of materials plus a small margin, then weekly or fortnightly labour payments) is the standard for construction and trades.
The key is to link payments to objective, visible progress. 'Completion of Phase 1' is better than 'End of Month 1' because it keeps the incentive on delivery and removes arguments about timing. Always state these milestones clearly in your quote and contract so there are no surprises later.
How to have the conversation
Many owners are afraid that asking for a deposit makes them look 'small' or untrustworthy. In reality, the opposite is true. Professional firms in almost every sector — from solicitors to builders to web designers — use staged payments as a standard part of their terms. Asking for a deposit signals that you have a professional financial process and that you value your time and resources.
Frame the conversation as a standard part of your onboarding: 'To secure the dates in the diary and cover the initial project setup, we require a 30% deposit. The remaining balance is then split across two milestones as we progress.' If a customer pushes back aggressively on a reasonable deposit, it's often a warning sign that they have their own cash flow problems — and they are exactly the customer you don't want to be lending money to.
Worked example: Structuring a £10,000 project
- Total project value
- £10,000
- Deposit (to secure dates & software seats)
- £3,000 (30%)
- Milestone 1 (delivery of initial concepts)
- £3,500 (35%)
- Final payment (on sign-off/launch)
- £3,500 (35%)
- Maximum cash exposure
- £3,500 (instead of £10,000)
Illustrative example. By staging the payments, the business owner never has more than £3,500 of unbilled work 'in flight' at any one time. This dramatically reduces the impact if the project is delayed or the customer becomes a slow payer.
What to do, in order
- 1
Calculate your up-front costs
Look at materials, software, and subcontractor fees you must pay before the first milestone. Your deposit must, at a minimum, cover these.
- 2
Define clear, objective milestones
Use 'Delivery of [X]' or 'Sign-off of [Y]' rather than dates. This ensures you only get paid when you deliver, and the customer only pays when they see progress.
- 3
Include the schedule in your quote
Do not wait for the contract to mention money. Put the payment stages on the very first document the customer sees.
- 4
Stop work if a milestone is missed
This is the hardest but most important step. If a milestone payment is late, pause the work. Continuing to work just increases your risk.
- 5
Automate the invoicing
Set up your accounting software to trigger the milestone invoices automatically so you don't forget to send them in the heat of the project.
Common mistakes
- Funding a project's materials or subcontractors out of your own pocket.
- Accepting 'payment on completion' for a project that lasts more than 30 days.
- Vague milestone definitions that allow a customer to argue that a stage isn't 'finished'.
- Being afraid to pause work when a staged payment is overdue.
- Not taking a deposit for a new customer whose payment history you don't know.
If you only have five minutes
Frequently asked questions
- What is a reasonable deposit percentage?
- There is no fixed rule — you should size it to cover the costs you will pay before the customer pays you. For materials-heavy jobs, that is often 25–50%. For service-only work with little up-front cost, a smaller deposit or none may be enough, though many still take 10-20% to secure the booking.
- Will asking for a deposit put customers off?
- For most legitimate customers, no. It is common practice and often reassures them you run things properly. It can, usefully, put off customers who were never going to follow through or who have cash problems of their own.
Sources
Who wrote and checked this
Written by Daniel Mercer, who has run the numbers on his own small business and writes from that experience. Daniel is not an accountant or a regulated financial adviser. Who writes this site.
Peer reviewed by Marcus Thorne, Small Business Advisor. Peer reviewers check for technical accuracy and compliance with current UK regulations.
Last reviewed: 26 July 2026
Do this next
Next steps
- 1
Put the numbers in: 13-Week Cash-Flow Forecaster
Use your own figures rather than the worked example above.
Open the tool - 2
Read next: How to Invoice a Customer Properly
What a UK invoice legally needs, how to write terms that actually get paid to, and the habits that shorten the gap between finishing work and being paid.
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