What is a deposit? #
A deposit is an amount of money given to the contractor in order to begin the project. Contractors usually use deposited funds to start purchasing materials and to pay for their labor costs as work ramps up. How deposits are applied against future invoices can vary from contractor to contractor. Some deposits are applied ratably over the course of the job, such that, in the case of a 10% deposit, each invoice is reduced by 10% to reflect the deposit credit. Some contractors treat deposits like down payments, and don’t apply them against future invoices. Typically the construction contract will specify the size of the deposit and how it will be treated with respect to future billings.
Type of deposits #
Downpayment-style deposit #
The contract specifies that the customer shall pay a 20% deposit on execution, another 30% of the contract value at Milestone 1, and the remaining 50% on completion. Once the contract is signed, you send an invoice to the client for the deposit.
Ratably-applied deposit #
The contract specifies that the client shall pay a 10% deposit, which shall be credited ratably against all future invoices. On execution, you send a deposit invoice for 10% of the total value of the job. When you send your 50% complete invoice (e.g., $5,000 on a $10,000 job), you reduce the billing by $500 based on the earlier deposit. The customer would still have a $500 deposit credit after paying that 50% completion invoice.
Deposits in Knowify #
Knowify supports both types of deposits.
For the downpayment-style deposit, the software provides a feature that will automatically generate a deposit invoice when the project is accepted. Upon payment of that invoice, a deposit will be associated with the project and every time you invoice the customer you will be able to apply all or part of the deposit amount. Knowify will remind you whether there is a paid deposit and the applicable balance.
For ratably-applied deposit, you can rely on Knowify’s progress billing features and invoice different percentages of the full project value according to your payment schedule