Using customer deposits and progress billing without overpromising
Updated: 1 day ago
Taking customer deposits can reduce an early funding gap, but the business still needs enough money to deliver the promised goods or services.
The first payment on a job can make a trading account look healthier than the business really is. Much of that receipt may already have a job to do: buying materials, reserving capacity and paying the people who will complete the order.
For Australian businesses, deposits and progress billing work best when payment milestones follow a credible delivery plan. This guide considers that cash sequence alongside operating changes that can improve cash flow.
The short answer
Agree what the customer is buying, when payments fall due and what each milestone means.
Forecast the remaining cost to complete every open job after taking a deposit.
Keep possible cancellations, refunds and contractual restrictions visible.
Do not count incoming deposits as profit or assume the whole balance can fund unrelated work.
What do customer deposits actually fund?
A deposit can help meet an early cost that would otherwise be funded by the owner or a finance facility. Examples include ordering custom materials, reserving production time or preparing a project. Its practical value depends on when cleared funds arrive and what obligations accompany the payment.
Progress billing spreads payments across agreed stages. It may reduce the amount the business has to carry until final completion, but only if the stages are meaningful, properly documented and accepted under the contract.
Neither arrangement automatically transfers delivery risk to the customer. The business must understand what it has promised and what happens if work is delayed, changed or cancelled. The ACCC’s contracts guidance is a starting point for understanding contractual commitments and consumer protections.
Special rules can apply in particular industries and states. Residential building deposits, for example, require their own legal review. Do not apply a general business example as a permitted deposit percentage or payment schedule for regulated work.
Match milestones to costs and evidence
Map the work from acceptance to handover. Identify the costs incurred before each stage and the evidence showing that stage has been achieved. The payment schedule should be understandable to the customer and workable for the business.
An unclear milestone such as “substantial progress” can create an argument precisely when the business needs cash. A more useful agreement explains the deliverable, acceptance process, invoice requirements and due date, subject to legal advice and the nature of the work.
The government’s payment terms guidance provides a reference for setting payment expectations. Put agreed terms in the relevant contract and invoicing process, rather than assuming a later invoice can introduce an obligation the customer never accepted.
Ask what happens when the customer’s approval contact is absent or an item is disputed. A progress invoice is not collected cash. Build realistic approval time into the forecast, especially when several wage payments fall before the next milestone receipt.
Calculate the remaining cost to complete
For each open job, list the cash already received, cash already spent, remaining costs and expected future receipts. That view helps distinguish a healthy cash position from one temporarily supported by advances on unfinished work.
The working capital needs guide explains the wider operating requirement. A job-level view adds a specific question: after using the deposit, what money still has to leave before the next customer payment becomes available?
Include costs that are easy to overlook, such as installation, freight, waste removal, commissioning and rectification allowances where appropriate. Ask your accountant to distinguish cash planning from revenue recognition and tax treatment. The timing of income for accounting purposes does not by itself identify cash free to withdraw.
Revisit the estimate when scope changes. An extra customer request can consume materials or labour before a variation is agreed and paid. Record the revised cost and payment pathway before assuming the additional work improves the job’s cash position.
A worked example: The deposit is not the whole buffer
Consider a hypothetical $60,000 custom supply job. Assume expected delivery costs of $44,000, a $15,000 deposit and a $25,000 progress payment after an agreed manufacturing stage. The final $20,000 is payable following completion.
If materials and early labour require $28,000 before the progress payment clears, the deposit leaves a $13,000 gap. The contract may be profitable overall, but it is not fully funded by the opening payment.
Suppose the business has $18,000 of unallocated cash. It could meet that assumed gap and retain $5,000, before considering other commitments. If approval of the progress stage slips and another $8,000 falls due, the business faces a further shortfall.
These are original illustrative assumptions, not a client case or funding recommendation. Test the actual contract dates, GST treatment, existing business costs and any financing payments. The example shows why the remaining cash obligation matters more than the deposit amount alone.
Avoid using tomorrow’s job to finish yesterday’s
Using a new customer’s advance to complete an older job can conceal a growing deficit. The bank balance may recover each time another order is accepted, while the total cost still owed to unfinished customers rises.
Review open jobs together and identify any completion funding that has no credible source. The profit and cash flow guide explains why activity and reported revenue can coexist with a shortage of usable money.
A deposit system should help the business deliver orders, not require an endless supply of new customers to meet existing promises. If that pattern is emerging, seek accounting and legal advice promptly. The guide to problems borrowing may not solve explains why another facility should not substitute for understanding the underlying shortfall.
Refund exposure belongs in the cash plan
Do not label every deposit non-refundable and assume that settles the legal position. Rights depend on the agreement, the circumstances and applicable law. Consumer rights cannot simply be removed by a blanket policy, as the ACCC explains in its small business rights guidance.
Identify the events that may require a refund, credit, rework or cancellation adjustment. Ask a lawyer to review material terms and any industry-specific requirements. Retaining cash for a possible obligation is a different decision from deciding whether the customer is legally entitled to it.
The 13-week forecast guide can help model these exposures. The government’s cash flow statement guide provides a further planning reference. Show a downside case where a substantial order is cancelled while other delivery costs remain committed.
Put controls around the receipts
Track advances by customer and job, reconcile them to the delivery schedule and restrict internal spending approvals where necessary. A separate bank account may assist visibility, but it does not by itself determine the legal treatment of the money or remove contractual obligations.
Assign someone to review overdue milestones and cost-to-complete changes. The business needs a prompt response when an approval stalls or a cost increases, before the next payroll makes the issue urgent.
Are all deposit receipts linked to a specific accepted order?
Is the next billing milestone supported by clear evidence?
Does the remaining cash cover completion and other commitments?
Have refund, variation and cancellation risks been reviewed?
Frequently asked questions
Is a deposit the same as earned profit?
No. Receipt of money, delivery performance and accounting profit are different matters. Ask your accountant to determine the appropriate accounting and tax treatment.
Is progress billing always available?
No. It depends on the customer agreement and any applicable rules. Agree the arrangement before relying on it to meet operating payments.
Does a separate account make the money unrestricted?
No. An account helps tracking, but the contract and law determine obligations. Obtain legal advice where money must be held or used in a particular way.
What if the deposit does not cover early costs?
Identify the remaining gap before accepting the order. Consider practical changes to scope, delivery and payment timing, then assess any funding requirement against realistic receipts.
Keep delivery capacity behind every payment promise
Review deposits alongside unfinished work and the cash needed to complete it. Clear milestones and disciplined tracking can reduce a funding gap while preserving the business’s ability to honour its commitments.
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General information only. This article does not constitute financial, credit, legal, tax, accounting, compliance or valuation advice. Finance is subject to lender approval, eligibility criteria, terms, fees and conditions. Consider obtaining independent professional advice for your circumstances before acting.
