Down Payment
An upfront partial payment a client makes before work begins, committing them to the project and funding its early costs.
Definition
A down payment is a partial payment a client makes upfront, before work begins, with the balance due later—at milestones, on delivery, or on a schedule. For service businesses it usually means collecting a percentage of the project price (25-50% is typical) when the contract is signed, often invoiced as a deposit invoice. The same term covers the buyer-side upfront portion of large purchases like equipment or property, where the rest is financed.
Mechanically, a down payment is invoiced and collected before the project starts, then credited against the total: on a $10,000 project with 40% down, the client pays $4,000 to kick off and the final invoice nets the remaining $6,000. Your contract should state whether the down payment is refundable if the client cancels—many businesses treat some or all of it as non-refundable once work is scheduled, since it reserves capacity. Received down payments are technically unearned until you do the work, which is why accountants record them as deferred revenue.
Why It Matters
Requiring a down payment is the simplest filter for serious clients and the cheapest protection against non-payment you will ever get. A client who will not put money down before work starts is telling you how the final invoice will go. With money down, the client is financially committed, scope discussions get more focused, and your worst-case loss on a ghosting client shrinks from the whole project to the uncollected balance.
It is also a cash flow tool. Projects consume your costs—your time, subcontractors, materials—weeks before final payment arrives, and the down payment funds that gap from the client's pocket instead of yours. Combined with milestone billing on longer engagements, it means you are never more than one phase deep in unpaid work, which is the position that keeps a service business solvent when a project goes sideways.
Examples
- 1
A web designer requires 50% down on a $6,000 site; the client pays $3,000 at signing and the remaining $3,000 at launch.
- 2
An agency takes 30% down ($9,000) on a $30,000 rebrand, then bills two $10,500 milestones, so unpaid work never exceeds one phase.
- 3
A prospective client balks at a $1,500 deposit on a $5,000 project; the freelancer treats it as a payment-risk signal and declines the work.
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