Deposit Invoices for Contractors: What to Include and When to Send One

A deposit invoice does two jobs. It gets the first money in so you can order materials without floating the customer, and it turns a verbal yes into a dated record. Most contractors get the second part wrong by not sending one at all: the deposit is mentioned on the estimate, collected by check “when you start”, and never shows up as a credit on the final bill. Here is the clean version.

When to send it: the moment they approve

The right time for a deposit invoice is the minute the customer approves the estimate. Not the next morning, not when you have a start date. At approval the customer has just decided to spend the money and has the estimate open in front of them; a pay button on that screen converts at a rate that an invoice sent two days later never will. Sending it immediately also fixes the start date in practice, because you can order materials the same day.

If you cannot automate it, do the next best thing: have the deposit invoice drafted before you send the estimate, and send it within the hour of the approval.

What the deposit invoice must include

• Invoice number and date, and “Due on receipt” rather than a net term. A deposit with net 30 defeats its own purpose.
• The estimate number it belongs to, and the estimate total, so the customer sees where this payment sits.
• The deposit as one line: “Deposit, 20% of estimate EST-1042”, with the amount. Do not restate every estimate line; that is the balance invoice’s job.
• What the deposit covers in one sentence: materials to be ordered, the permit, scheduling the crew.
• Tax, if your state taxes the deposit at the time of payment rather than at completion. Some do; your accountant knows which.
• Your business name, license number, address and contact, and the customer name and job address.
• The pay link, and any other method you accept (check, cash, Zelle) with instructions.
• A short line about cancellation: what is refundable and what is not.

Crediting the deposit on later invoices

Every invoice after the deposit shows the deposit as a credit, so the running picture is always visible: estimate total, approved change orders, paid to date, balance due. On the final invoice the cleanest layout is the full estimate line by line, then a line reading “Less deposit paid (INV-1043)” as a negative amount, then the balance. Customers almost never dispute a bill that reconciles to the number they approved.

If the job uses milestone draws, the deposit is milestone one and each draw invoice carries a “paid to date” line. The deposit should never be silently absorbed into a draw; show it.

Escrow and capped states

In New York, money received before substantial completion must be deposited in an escrow account within five business days or covered by a bond, and the customer must be told where it is held. In capped states such as California, Maryland, Massachusetts, Nevada and Pennsylvania the deposit amount itself is limited; see our guide on how much to charge. The invoice does not change in those states, but the amount and the handling of the money do.

Refunds and cancellations

Write the cancellation terms on the estimate and repeat the one-line version on the deposit invoice. The common fair split: special-order materials already ordered are non-refundable; labor not performed is refunded; a stated cancellation fee covers time already spent. Where a state gives the homeowner a three-day right to cancel a contract signed at home, do not place non-returnable orders until the three days have passed. When you do refund, issue a credit note against the deposit invoice so the paperwork matches the money.

Receipts and records

Send a receipt the moment the deposit is paid, with the invoice number on it. Keep the estimate, the deposit invoice, the receipt and the balance invoice together under the job; that set is what you need for taxes, for a lien if it comes to that, and for the customer who asks a year later what they paid.