Deposit invoices: How and why to use them

Making an invoice for a deposit can protect your business from the financial risk of customer cancellation. If your business’s projects take a long time to complete or if there are high material costs, requesting a deposit invoice can make sense.

Let’s look at deposit invoices and how to create and send one.

How do I make an invoice for deposit?

A deposit invoice is sent and paid before you begin producing your goods or services. This protects your business from customer cancellation. It also prevents future conflicts about the final sum owed to you.

Before creating your invoice, you should come to an agreement with your customer over its terms and price.

With this information, you can create and send a deposit invoice, requesting payment. Using a professional invoice template can help you in the creation process.

How do I invoice a 50% deposit?

For example, let’s say you’re offering a service for $1,000 USD with a 50% deposit.

When you create your deposit invoice, your customer will need to pay a $500 USD deposit.

Once they’ve paid this deposit, you can begin delivering your service.

When you’ve delivered your service in full and the job is completed, you’ll send your customer a final invoice. This will be to request the final owed sum.

The deposit invoice will be subtracted from the final amount, meaning, in our example, that your customer will then pay $500 USD after the job is finished.

Do I need an invoice for a deposit?

There are no laws requiring you to send a deposit invoice for certain goods or services.

But that doesn’t mean you shouldn’t.

Sending a deposit invoice can be something to consider for jobs with high costs or that take a long time to finish.

Invoices are also important for financial record keeping for your business.

Let’s take a closer look at when to request a deposit.

When to request a deposit

Requesting a deposit protects your business.

If you offer a product or service that requires high investment costs on your side, a deposit protects you against the risk involved. For example, if there are high material costs or material that can’t be resold, requesting a deposit can make sense.

As a small business, requesting a deposit can also increase cash flow into your business.

This is especially important for goods or services that take time to produce. A deposit enables you to cover labor and material costs. If your small business can only take on a limited amount of work at any given time, deposits ease the financial risk involved.

A deposit can also increase customer loyalty. When your customer has already paid a deposit invoice, they can be more likely to see the job through to completion rather than canceling.

Is a proforma invoice a deposit invoice?

A deposit invoice is not the same as a proforma invoice.

Unlike a deposit invoice, a proforma invoice cannot be used to request payment. You send a proforma invoice before a sale is made to give your customer a price estimation.

Proforma invoices are also used in the export/import industry to determine custom duties and taxes before payment is due.

In contrast, you can use a deposit invoice to request payment. Before you begin producing your good or service, the customer will pay the deposit invoice. This generates inward cash flow, protecting your business.

How to send a deposit invoice

After you’ve created your deposit invoice, you then need to send the invoice to your customer.

This can be done either by mail, email or through invoicing software.

Sending invoices through the post is still the preferred choice by some businesses. But you’ll have to deal with longer delivery times, which means slower payment.

If you want to get paid as fast as possible, then sending your deposit invoice via email or through invoicing software can be a good approach.

The E-invoice market is growing and is expected to have a market value of $15.5 billion USD by 2027.¹

Sending invoices via email is an efficient and fast way to send a deposit invoice. You can attach the invoice as a PDF, allowing your customer to easily download it.

You can write a brief message in the email, confirming any relevant details such as the order number, amount owed and due date. When you attach the invoice as a PDF, the customer cannot edit the invoice, protecting your business.

Sending a deposit invoice through invoicing software is another efficient option to consider. Invoicing software can automate the invoice creation process. It can also send automatic payment reminders, so you don’t have to keep track of payment status. This can save your business time, allowing you to focus on other objectives.

Create deposit invoices with the free invoice generator from Wise

The Wise Business account is a smart alternative to traditional banks. It’s not only easy to open, but also easy to use.

You can use the free invoice generator from Wise to quickly put together professional invoices for deposits. You can also use the invoice template for your business.

When you create your invoice, you can add your Wise Business account details to make it even easier for customers to pay you. If you have international customers, then you can also add one of your ten local account details so that they can pay you just like a local.

Find out more about Wise Business

Source checked May 2, 2023.