How Much Deposit Should a Small Business Ask For?

By Bill Stilwell · Last reviewed October 17, 2026

The short answer

A deposit is money a customer pays before you start, to hold their spot or cover materials. Set one written rule for how much, when it’s due, what it covers, and when it’s refundable. Then record every deposit and apply it to the final bill. Some states limit deposits for certain kinds of work, like home improvement, so check your state before you pick an amount.

What this means

10.7.2 Deposits

Your deposit rule answers four questions:

How much. A flat amount, like $100 to hold a date, or a percentage of the job.
When it’s due. Usually when the customer signs or books.
What it covers. Holding the date, ordering materials, or both.
When it’s refundable. For example, fully refundable until materials are ordered, then not.

Some states set limits. For example, California’s Contractors State License Board says a home improvement down payment can’t be more than $1,000 or 10 percent of the contract price, whichever is less. Other states have their own rules, and some have none for your kind of work. Check your state licensing board or attorney general’s consumer protection office.

The Federal Trade Commission (FTC) Cooling-Off Rule can also matter. If you sell to a consumer at their home and the sale is $25 or more, or at a temporary place like a fair or hotel and the sale is $130 or more, the buyer often has three business days to cancel. If they cancel, the FTC says you have 10 days to refund their money. There are exceptions, including sales that start from the customer asking you to come do a repair. Read the FTC page before you take a deposit in someone’s home.

16.6.2 Deposit recording

A deposit isn’t fully earned when you get it. You still owe the work. Record it so you always know:

Who paid, how much, and when
Which job or order it belongs to
Whether it has been applied to an invoice, refunded, or kept under your policy

How you report deposits for taxes depends on your accounting method (see 10.1.4 Accounting Method). Ask your certified public accountant (CPA) how to set this up in your books.

Made-up example: Maple Street Cabinet Works takes a 30 percent deposit to order wood for custom cabinets. The proposal says the deposit is refundable until the wood is ordered, which happens within 5 business days. The bookkeeper records each deposit under the customer’s job and subtracts it on the final invoice, so the customer sees exactly what they still owe.

Why it matters

No deposit can leave you paying for materials a customer never picks up.
A deposit that’s too high can break state law or scare off good customers.
Vague refund terms lead to fights, chargebacks, and one-star reviews.
Unrecorded deposits get lost, double billed, or forgotten on the final invoice.

Who this applies to

Any business that books time, orders materials, or makes custom products before the customer pays in full. Contractors, event vendors, photographers, salons with long appointments, and custom product makers all use deposits. Businesses that get paid on the spot, like a walk-in barber, may not need one.

How to do it

Check your state rules first. Look up your licensing board and your attorney general’s consumer protection page for deposit limits on your type of work.
Pick your amount. Base it on what you’d lose if the customer backed out: materials, booked time, or a held date.
Write the refund rule. Say exactly when the deposit is refundable and when it isn’t. Tie it to an event the customer can see, like the date you order materials.
Put it in writing. Add the deposit terms to your estimate, proposal, or service agreement (see 11.1.2 Estimate and 11.1.1 Service Agreement). Get the customer’s signature or written OK.
Give the cancellation notice when required. If the FTC Cooling-Off Rule applies, give the customer the notice and forms the rule calls for.
Collect through an approved method only (see 10.7.1 Payment Methods).
Record it right away under the customer and job.
Apply it on the final invoice as a clear line, like “Less deposit paid on May 3: $600.”
Review open deposits monthly. Any deposit with no matching job is a problem to fix.

What proof to keep

The signed estimate, proposal, or agreement with the deposit terms
The payment receipt or processor record
The bookkeeping entry for the deposit
The final invoice showing the deposit applied
Any cancellation notice you gave, and any refund record

Common mistakes

Copying another state’s deposit rule. Limits differ by state and by type of work.
Calling a deposit “non-refundable” with no other details. Customers and card companies may not see it that way if you never did the work.
Spending the deposit before ordering materials. Then you can’t do the job or refund it.
Forgetting to subtract the deposit on the final invoice. That’s the fastest way to get a dispute.
Taking deposits to a personal account. It breaks your books and your proof.

When to get help from a pro

An attorney can check your state’s deposit and cancellation rules for your industry. A CPA can set up how deposits are recorded and taxed. Questions to ask:

Is there a legal limit on deposits for my kind of work in my state?
Does the FTC Cooling-Off Rule apply to how I sell?
How should I record deposits under my accounting method?

Bill’s note

[Bill: add a short note. For example, how SiteSmarty handles up-front payment for website builds, or a client who lost money on materials because they didn’t take a deposit.]

How I did this for SiteSmarty

[Date I did this:]
[What I actually did, step by step: the deposit amount and refund rule I set for SiteSmarty, and where it appears]
[What it cost and how long it took:]
[What surprised me or what I’d do differently:]
[Screenshot or photo to add, with private info blurred: the deposit terms on a proposal and the deposit line on a final invoice]
[Result so far:]

Questions people ask

How much deposit should I charge? Enough to cover what you’d lose if the customer cancels, and no more than your state allows. Many businesses use a flat amount for booked time and a percentage for jobs with materials.

Is a deposit refundable? It depends on your written terms and your state’s rules. Say clearly when it is and isn’t refundable before the customer pays.

Are there legal limits on deposits? In some states and industries, yes. California, for example, caps home improvement down payments. Check your state licensing board.

How do I record a customer deposit? Record it under the customer and job as soon as it arrives, then apply it on the final invoice. Ask your CPA how it fits your accounting method.

Audit check

Line	Question	Pass looks like	Fail looks like	Evidence to collect
10.7.2 Deposits	Does the business have a written deposit rule that covers amount, timing, and refunds, and fits state law?	Written rule in every estimate or agreement. Amount within state limits. Clear refund terms.	No written rule. Deposits above state limits. “Non-refundable” with no details.	Sample signed agreements, state rule checked and dated
16.6.2 Deposit recording	Is every deposit recorded under the customer and job and applied to the final invoice?	Every deposit traced to a job and to a final invoice or refund.	Deposits with no job. Final invoices that forget the deposit.	Deposit report, 5 sample jobs traced from deposit to final invoice

Where this fits

Do this first: 10.7.1 Payment Methods

Do this next: 10.7.3 Progress Payments

Sources

Federal Trade Commission, "Buyer's Remorse: The FTC's Cooling-Off Rule May Help" (checked October 17, 2026)
California Contractors State License Board, "CSLB Reminds Contractors of Progress Payment Restrictions" (checked October 17, 2026)
Google Business Profile Help, "Tips to improve your local ranking on Google" (checked October 17, 2026)

This page explains general rules and Bill's own experience. It is not legal, tax, or insurance advice. Talk to a qualified professional about your situation.