Deposits & Milestone Billing

Why deposits reduce risk

Imagine completing six weeks of custom work before issuing your first invoice. Everything you have done — the time, materials, and opportunity cost — sits as an unsecured, unrealised asset in your business. If the client disappears, disputes the work, or goes into administration, you have no money and potentially no recourse.

A deposit changes this equation fundamentally. It is not an aggressive commercial demand — it is a normal, professional practice that serves two clear purposes. First, it transfers a portion of the risk to the client before the work begins. Second, it tests commitment: a client who cannot or will not pay a reasonable deposit on a substantial engagement is signalling something important about their financial position or their seriousness.

Deposits are particularly appropriate for: bespoke or custom work with limited resale value; large project engagements where you will carry significant work-in-progress; one-off or infrequent customers whose payment behaviour you have not yet established; and any engagement where materials must be purchased or subcontractors engaged before the work begins.

Deposit sizing

There is no universal rule for deposit amounts — the right level depends on your industry, the nature of the work, the client relationship, and your risk appetite. By way of illustrative examples: 30–50% upfront is common for bespoke or custom manufacturing; 20–30% is typical for project-based professional services; smaller deposits or none at all may be appropriate for established customers with a strong payment history where ongoing credit terms already apply.

When setting the deposit amount, consider what you would lose if the engagement were cancelled the day after work commenced. If you would have ordered materials, committed subcontractors, or cleared your schedule, the deposit should at minimum cover that sunk cost. The deposit is not a windfall — it is a hedge against the cost of early termination.

Document the deposit amount in the signed agreement or accepted quote before any work begins. A deposit clause that only appears on an invoice after work has started is far harder to enforce, because there may be no clear moment of agreement.

Structuring milestone billing

For longer engagements, a single deposit and a final invoice exposes you to risk throughout the middle of the project. Milestone billing addresses this by breaking the payment schedule into stages that correspond to defined points in the work.

The key to effective milestone billing is defining the milestones clearly in the contract before work begins. Examples of well-defined milestone triggers include: delivery of the Stage 1 report, completion of schematic design, sign-off on prototype, practical completion of construction, or delivery of the first production run. These are objective and verifiable — either the milestone has been reached or it has not.

Invoice immediately on milestone completion. Do not wait until the end of the month. The habit of batching invoices at month end is one of the most common causes of avoidable cash-flow gaps. If a milestone is completed on the 8th, invoice on the 8th.

A typical milestone billing structure for a project might be: 30% on commencement; 30% on completion of an interim deliverable; 30% on practical completion; 10% on final sign-off or handover. These percentages are illustrative — calibrate them to the cost profile of your work. The principle is that your invoiced amount should at all times be roughly in line with the work done, so your net exposure at any point is small.

Writing enforceable milestone triggers

The most common mistake in milestone billing is defining triggers around client approval or satisfaction. Clauses such as "Stage 2 invoice payable upon client approval of Stage 1 deliverables" are problematic because approval is subjective. A client who wants to delay payment can simply withhold approval indefinitely.

Replace subjective triggers with objective ones. "Stage 2 invoice payable upon client's receipt of the Stage 1 report" is objective — receipt is a fact, not an opinion. "Stage 2 invoice payable upon delivery of the prototype to the client's nominated address" is objective. If you must include a client sign-off requirement, specify a deemed acceptance clause: "If the client does not raise specific written objections within 5 business days of receipt, the deliverable is deemed accepted." This prevents open-ended delay.

Have your solicitor review the milestone trigger language in your standard agreement. A small investment in clear contract drafting can prevent significant disputes later.

Handling deposit resistance

Occasionally, a client will resist paying a deposit. Before adjusting your position, understand why. Legitimate reasons do exist: some government entities have procurement rules that prevent advance payments; some corporate clients operate on invoice-only payment cycles. These are understandable constraints and you can work around them — perhaps by taking a smaller initial deposit or accepting a formal purchase order in lieu.

However, a private client who resists a deposit on a $200,000 custom engagement without a clear reason deserves careful scrutiny. Ask yourself whether their resistance reflects a cash position that makes the engagement risky. A business that cannot advance 20–30% of a project cost before work commences may struggle to pay the final invoice as well.

Your options when a client resists a standard deposit: accept the risk and proceed without (document that you are doing so, and why); require advance payment instead of a deposit for the full first stage; reduce the scope of work covered before the first payment is triggered; or, for very large engagements, obtain a personal guarantee from a director to secure the unpaid balance.

Interaction with PPSR for goods supply

If your milestone billing involves the supply of goods — plant, equipment, materials, or manufactured product — consider whether a PPSR registration is appropriate to protect your ownership interest in those goods while they remain unpaid. Lesson 13 covers the PPSR in detail. The short version: if your terms include a retention-of-title clause and you supply goods on milestone terms, registering on the PPSR gives your title claim formal priority in the event of the customer's insolvency.