Requesting a deposit before starting on a client’s project does more than just provide cash to cover the costs you’re about to incur. It also indicates mutual investment.
“It shows the client’s serious,” says Rob Ambler, president of Ambler Industries, based in Furlong, Pennsylvania. “They understand that there’s the financial commitment to it, and then we put work in to get it scheduled, permitting and all that. We need to make sure that we’re covered in that regard.”
How Much Should You Collect?
However, if you currently are not in the habit of requesting deposits from customers, understanding what a fair amount is to ask for upfront can prevent you from asking at all.
The good news is that there isn’t one universal rule of thumb to follow when creating your deposit policy.
The first step is to take your state and local laws into account as different areas will have different restrictions on how much can be requested as a deposit. For instance, in Pennsylvania, companies may not request more than a third of the project cost in advance. Meanwhile, in California, contractors are not allowed to request more than a $1,000 deposit.
Peter Pazmany, president of Pazmany Bros. Landscaping, based in Los Altos, California, says to address this limitation, once a client has made their $1,000 deposit, they will implement progress payments where an additional portion is due upon start of work.
“We try to keep it in the five to 10% range for the final payment and along the way, depending on if the project is going to be heavy hardscape or heavy landscape, the progress payments are created accordingly,” Pazmany says. “We’ll try and say specific things. For example, 15% of the project total due upon removal of all hardscape patios and pathways and back lawn areas.”
Jaylin Lane, owner of Straight Edge Landscaping, based in Austin, Texas, says in the past they would require a 50% deposit, but as their average ticket size has grown, they have changed this amount to 25%.
“Especially for bigger projects, we’ll do 25% to start, 25% halfway through, 25% at the end, or just 50% at the end, and that helps the cash flow for us and the homeowner,” Lane says.
Ambler says how much they require for a deposit varies depending on the size of the job. If it’s under $50,000, they request a third with the signed contract, while for jobs over $50,000, they ask for 10% down. He says with larger jobs, they used to get some pushback asking for a third upfront.
“Let’s say it’s a $200,000 job,” Ambler says. “We’re asking them for $67,000. There was some pushback, so we changed it to 10% upfront, and then 25% on day one. Then we never get pushback on that.”
Additionally, Ambler now makes sure no more than 15% is still due upon completion of the project. Previously, they would request a third to start, a third halfway through and a third upon completion.
“I realized on larger projects that having a third sitting out there at the end is way too much,” Ambler says. “So we’ve changed that to make sure from a cash flow perspective that we’re always in front of it, and then so they’re not holding a whole lot of money on us at the end of the job.”
Are Any Jobs Too Small for a Deposit?
Whether you should require a deposit for every job will depend on the nature of your work and your comfort level with the customer.
For instance, Ambler says they take a deposit for anything and everything.
“The only time we might not is if it’s a small job and they’ve been an existing client, and we have a relationship with them,” Ambler says. “But outside that, we always get a deposit.”
Lane says deposits may not make sense for a simple service like a mulch cleanup, but it is good practice for those starting out so they can become more comfortable making that ask.
Pazmany acknowledges it may not make sense to require a deposit for a job that is only worth a couple $100, but contracts should at least get everything in writing.
“If it’s an irrigation repair or an emergency project where somebody calls you and you help them, just getting a recap to them with time and material guidelines, a do not exceed cost or an estimated cost with some sort of agreement to update if it changes,” Pazmany says. “I think it’s critical that you have that for smaller projects where you might not be able to get a $500 deposit or a $1,000 deposit because the project might happen so quickly.”
Navigating Cancellations
Requiring a deposit greatly decreases the chances of a client backing out on a project, but it is important to still have a policy in place ahead of time to deal with cancellations.
Lane says he encountered this recently where their schedule was backed up and despite telling the client they would start in two to four weeks, she requested her deposit back on week four because they did not start soon enough. They did not have a policy in place, so they returned the deposit as a sign of goodwill.
Pazmany says while they haven’t experienced this firsthand, they do list their deposit as non-refundable.
“Depending on how far we had gone and if we had actually ordered materials, I think that would be a conversation to have with the client,” Pazmany says. “If those materials are something that could be canceled, if there is plant material but it hasn’t been delivered, you can cancel the order. I think that would all come into play for that situation.”
Ambler says their contract states their deposits are non-refundable, but they typically don’t hold the client to that.
“We’ll just credit back any money that’s over and above what we’re out of pocket on,” Ambler says.
Addressing Client Concerns
If you encounter client pushback when requesting a deposit, take the time to understand their hesitation. In some cases, it could be general sticker shock with the amount due. In other instances, a client may have been burned in the past with a previous contractor who took their money without completing the work.
“Once we understand a little bit more, we try and explain how our process is usually different,” Pazmany says. “We’ve had some people like that, and they’ve asked, instead of a five or 10% final payment, could we make it 20%? In those situations, if it all makes sense, we’re usually agreeable.”
Lane says the key is to provide the facts but also to be understanding and human when building trust with the client.
Ambler says they work to reassure concerned customers by providing their insurance, reviews and evidence of their trustworthy reputation. He says they may take the 10% deposit and do smaller draws throughout the project so the customer sees the work is being continued, but they will not work with someone who refuses to provide a deposit.
“There’s got to be a trust relationship between the client and us,” Ambler says. “If they’re not willing to trust us with $10,000 on a $100,000 job, then that’s going to be a problem throughout the whole thing. We have to trust they’re going to pay us, and they have to trust that we’re going to get the work done and not take advantage of them. There’s a mutual trust there, so it’s okay to hold your ground and walk away when you need to. There’s nothing worse than a financial battle with somebody.”
