Deposit invoice: how to bill an upfront payment and deduct it later

The short answer

A deposit invoice is a normal invoice for part of the project price, sent before the work starts. It has its own invoice number, says clearly that it is a deposit against a named quote or project, and is due before you begin. When the project ends, the final invoice shows the full price, subtracts the deposit with a reference to the deposit invoice, and asks for the balance.

For most freelance projects I ask for 30 to 50% up front. On small jobs from new clients I sometimes ask for all of it.

Why ask for a deposit at all

In my first years freelancing I started work on a handshake and an email. Most clients paid. The ones who did not usually vanished after the first round of drafts, and I had a week of work and nothing to send an invoice against except a polite email thread.

A deposit changes three things:

• The client commits. Someone who has paid 40% does not quietly disappear after the first review.
• Your time is covered if the project is cancelled early. Cancellations happen for reasons that have nothing to do with you: budgets get cut, a manager changes, the product launch moves.
• It filters. A client who argues about a deposit on a 3,000 project will argue about the final invoice too.

Clients who work with freelancers often expect it. I have never lost a project I wanted because I asked for a deposit. I have lost a few I was glad to lose.

How much to ask for

There is no rule, only what the client will accept and what you can afford to lose. What I use:

On longer projects one deposit is not enough protection. Split the rest into milestones tied to things both sides can see, like approval of the concept or delivery of the first draft. The guide on invoice payment terms covers milestone billing in more detail.

Refundable or not

Say it in the quote or contract before the client pays. If you say nothing, expect an argument the day the project is cancelled.

Most freelancers make the deposit non-refundable once work has started, because it pays for the time already spent and for the slot you turned other work down for. A fairer version that clients accept more easily:

• Fully refundable if the client cancels before the start date, minus any costs you have already paid out.
• Non-refundable once work has started, and set against whatever work has been done.
• If you cancel, you refund what has not been earned.

Consumer protection law can limit what you may keep when the client is a private person rather than a business, and the rules differ by country. If you mostly work for individuals, check your local rules before you rely on a non-refundable clause. The contract checklists have a cancellation clause you can adapt.

What the deposit invoice should say

It is a full invoice with everything a normal invoice needs (see what to put on an invoice), plus three things that make it a deposit:

1. The word deposit in the description, with the project or quote it belongs to.
2. The percentage and the total it is a percentage of, so nobody has to work it out.
3. A due date before the start date, and a line saying work starts once it is paid.

A line item that does the job:

Deposit (40%) for brand identity project, per quote Q-2026-014
dated 2 October 2026. Project total 4,950.00.          1,980.00

Due on receipt. Work starts on the agreed start date once this
deposit has been received. The deposit is set against the final
invoice.

Give it its own invoice number in your normal sequence. Do not invent a separate D-001 series unless you keep it consistently; the guide on invoice numbering explains why a single sequence is easier to defend. You can make the invoice with the free invoice generator and send the quote from the quote generator with the deposit terms written into it.

The final invoice: deducting the deposit

This is where most confusion comes from. The final invoice should show the whole price of the project, then take the deposit off, then show what is left. That way the client's accounts team can match both payments to one project, and anyone reading the invoice later sees the full value of the work.

A worked example. The quote was 4,950.00 plus 20% VAT. The client paid a 40% deposit, invoiced with VAT.

Check the arithmetic: 40% of 4,950.00 is 1,980.00, VAT at 20% on that is 396.00, and 4,950.00 minus 1,980.00 leaves 2,970.00 net. VAT on the balance is 594.00, so the balance due is 3,564.00. The deposit invoice plus the final invoice add up to the full 5,940.00, and the VAT on the two invoices adds up to 990.00, the VAT on the whole project.

If you are not VAT registered, the same table works with one column. Under the table, repeat the reference:

Deposit of 2,376.00 received on 6 October 2026 against invoice
2026-031. Balance of 3,564.00 due within 14 days, by 3 November 2026.

If the project changed size, the full price on the final invoice is the new price. Add the change requests as their own lines above the deposit deduction, so the client can see why the total moved.

VAT and tax timing on deposits

In many VAT systems a deposit is taxed when you receive it, not when the project finishes. In the EU, Article 65 of the VAT Directive says that where a payment on account is made before the service is supplied, VAT becomes chargeable when the payment is received, on the amount received. In the UK, HMRC's VAT Notice 700 (section 14) says that if you issue a VAT invoice or receive a payment before the basic tax point, the tax point for that amount is whichever of the two happens first.

What that means in practice if you are VAT registered:

• Charge VAT on the deposit invoice, at the rate that applies to the project.
• Report that VAT in the period you received the deposit, even if the project ends in a later period.
• On the final invoice, charge VAT only on the balance, as in the table above.

Some deposits are treated differently, for example a genuinely returnable security deposit that is not a part payment. Freelance project deposits are almost always part payments. Outside VAT, income tax rules on when a deposit counts as income vary by country and by how you keep your books. Ask your accountant, or check HMRC, the IRS or your own tax office.

Deposit invoice or pro forma?

Some freelancers send a pro forma instead of a deposit invoice, then issue the real invoice once the money arrives. That works, and some clients' finance teams prefer it, but it is two documents where one will do. A pro forma is a request, not a tax invoice: HMRC's guidance says it should be marked "This is not a VAT invoice". If you use one, issue the real invoice as soon as you are paid, because receiving the payment can create the tax point. The guide on pro forma invoices covers when each one fits.

When the client will not pay a deposit

Large companies sometimes say their system cannot pay before delivery. Before you give up on it:

• Offer a smaller first milestone instead, invoiced on something that happens in week one, such as the approved brief or the first concept.
• Ask for a purchase order before you start. It is not money, but it is a written commitment from the people who pay.
• Shorten the payment terms on the remaining invoices.

If none of that is possible and you still want the job, keep the first stage short so you never have more than a couple of weeks of unpaid work out. And put it in writing that work pauses if an invoice goes overdue.

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