What If A Customer Refuses To Pay A Deposit?

You're ready to start the job, the customer seems keen, and then they push back on paying a deposit. It can feel awkward, especially when you don't want to lose the sale.

For many New Zealand service businesses, a deposit isn't about being difficult. It's about covering upfront costs, reserving time in your calendar and making sure the customer is serious.

The tricky part is getting the wording right. A clear deposit clause can protect your cash flow, but a heavy-handed or misleading clause can create problems under New Zealand contract and consumer law.

Can You Refuse To Start Work Without A Deposit?

Yes, you can usually refuse to start work until the customer pays a deposit, as long as your terms are clear and the customer has agreed to them before the work starts.

This is common for service providers, consultants, trades, creatives, event suppliers, online businesses and custom product businesses. If you need to buy materials, block out time, book subcontractors or start planning work, asking for money upfront is a normal commercial step.

The key is to make the deposit part of your customer contract before you commit to the job. If you spring it on the customer after they've already accepted your quote, they may be able to say the deposit wasn't part of the deal.

A simple process can help:

• Send your quote or proposal, together with your terms of sale, with the deposit amount and payment deadline clearly stated.
• Include your payment terms, cancellation terms and any conditions around refunds in your terms of trade.
• Ask the customer to accept the quote in writing, such as by signing, ticking an online box or replying by email.
• Wait until the deposit clears before ordering materials or starting work.

For example, Mia runs a wedding photography business in Auckland. She asks for a 30% deposit to lock in the date because she may turn away other bookings once she reserves that day. If her quote says the booking is only confirmed once the deposit is paid, Mia has a much stronger position if a couple tries to hold the date without paying.

What Should You Do If A Customer Refuses To Pay A Deposit?

If a customer refuses to pay a deposit, you should pause before starting work and decide whether the commercial risk is worth it.

Sometimes a customer has a genuine concern. They may have been burned before, or they may not understand why you're asking for money upfront. Other times, the refusal is a warning sign that payment may be difficult later too.

Explain What The Deposit Covers

Keep it calm and commercial. You might say the deposit helps cover scheduling, preparation, materials, supplier costs or design time. If the customer sees the deposit as part of the price rather than an extra fee, the request often feels more reasonable.

Offer A Smaller Deposit Or Milestone Payments

You don't always need to ask for a large deposit. Depending on the job, you might offer:

• 20% upfront, with the balance due before delivery.
• 50% upfront and 50% on completion.
• A smaller booking fee, then staged payments as work progresses.
• Payment in full upfront for small jobs or custom orders.

Milestone payments can be useful where the customer is hesitant but you still need protection. They also stop the unpaid amount from growing too large.

Use A Clear Start Date Rule

Your terms can say that timelines begin when the deposit is received, not when the customer first asks you to start. This protects you if the customer delays payment and then expects the original deadline to stay the same.

Be Ready To Walk Away

If the deposit is reasonable and the customer still won't agree, it may be safer not to take the job. Chasing payment later can take time, energy and money away from better customers.

Is A Non-Refundable Deposit Legal In New Zealand?

It depends. A non-refundable deposit can be legal in New Zealand, but it needs to be clear, fair and linked to a real business reason.

You should be careful about saying a deposit is non-refundable in every situation. If your business cancels, fails to provide the service, or can't deliver what was promised, keeping the full deposit may breach the Fair Trading Act 1986, the Consumer Guarantees Act 1993 or the terms of your contract.

For consumer customers, the Consumer Guarantees Act 1993 gives guarantees that services will be carried out with reasonable care and skill, fit for purpose where the customer made that purpose known, completed within a reasonable time if no timeframe is agreed, and charged at a reasonable price if no price is agreed. You generally can't contract out of those guarantees for consumer services.

The Fair Trading Act 1986 also prohibits misleading or deceptive conduct. Saying all deposits are non-refundable without explaining when that applies can be risky if the statement gives customers a false impression of their rights.

For business-to-business contracts, you may have more flexibility, but you still need clear wording. The Fair Trading Act can also apply to business conduct, including misleading representations. It also has unfair contract term rules for standard form small trade contracts, generally where the annual trading relationship is worth less than $250,000, including GST, when the relationship first arises.

A safer approach is to say when the deposit is refundable, partly refundable or not refundable. For example, your terms might say:

• The deposit is credited towards the final price.
• The deposit secures your booking or project start date.
• If the customer cancels, you may retain an amount that reflects work already done, costs incurred and loss caused by the cancellation.
• If you cancel for a reason within your control, you'll refund the deposit for services not supplied.

This is more balanced than a blanket statement that the deposit is never refundable, no matter what happens.

How Much Deposit Can You Ask For?

You can generally choose the deposit amount, but it should make commercial sense and be proportionate to the risk you're taking.

There's no single deposit percentage that works for every New Zealand business. The right amount depends on the type of work, your upfront costs, the customer relationship and how easy it would be to resell your time, stock or booking slot.

Common approaches include:

• 10% to 20%: often used to confirm a booking or cover light preparation work.
• 30% to 50%: often used for custom services, creative work, events, trades or projects with upfront planning.
• 100% upfront: more common for small jobs, digital products, online bookings, subscriptions, custom goods or customers with a higher payment risk.

The more you ask for upfront, the more carefully you should explain what happens if the job is cancelled or delayed. A high deposit that you keep even where you suffer little or no loss may be vulnerable to challenge.

New Zealand courts can refuse to enforce a contractual penalty if it's out of proportion to your legitimate business interests. In plain terms, a clause is more likely to be enforceable if it protects you from a real loss or risk, rather than punishing the customer for cancelling.

Your legitimate interests might include:

• materials you have bought for the job;
• staff or contractor time already booked;
• planning, design or admin work already completed;
• a booking slot you can no longer resell;
• merchant fees or platform fees you can't recover;
• the risk of being left unpaid after doing substantial work.

If your deposit is really a booking fee, say that. If it's an advance payment for work, say that. If part of it may be used to cover cancellation costs, say that too.

What Should A Deposit Clause Include?

A good deposit clause should tell the customer what they need to pay, when they need to pay it, what the deposit does and what happens if the job changes or is cancelled.

Templates can be a useful starting point, but deposit clauses work best when they're tailored to how your business actually operates. A photographer, builder, consultant, coach and online store won't all need the same wording.

The Deposit Amount

State whether the deposit is a fixed dollar amount or a percentage of the total price. If the final price may change, explain how the deposit will be calculated.

The Payment Deadline

Be specific. You could say the deposit is due within 7 days of accepting the quote, or before the booking is confirmed. If time is sensitive, you might say you won't hold the booking date until the deposit is received.

When Work Starts

Make it clear that you don't have to start work, order materials or reserve a booking slot until the deposit has cleared. This matters because a customer may accept a quote but delay payment.

How The Deposit Is Applied

Say whether the deposit will be deducted from the final invoice, kept as a booking fee, or used to cover initial work. If you don't explain this, the customer may assume the deposit is always fully credited against the final price.

Cancellation And Refund Rules

Your clause should explain what happens if the customer cancels, postpones or doesn't provide the information you need to do the job.

For example, you might retain the deposit to the extent needed to cover work done and costs incurred, with any balance refunded. Or, for a booking-based business, you might keep a booking fee if the customer cancels too close to the service date and you can't reasonably fill the slot.

Consequences Of Late Payment

If the customer doesn't pay the deposit on time, your clause can say you may delay the start date, release the booking slot or withdraw the quote. Make sure this matches how you actually run your business.

Can You Charge A Cancellation Fee As Well As A Deposit?

Yes, you can charge a cancellation fee in many cases, but it needs to be clear, reasonable and connected to the loss or cost caused by the cancellation.

A cancellation fee is different from a deposit. A deposit is usually paid upfront. A cancellation fee may become payable if the customer cancels after a certain point.

You need to be careful not to double dip. If you keep the full deposit and also charge a cancellation fee, the combined amount should still be reasonable compared with your actual loss and legitimate business interests.

For example, Sam runs a corporate catering business in Wellington. A company books a lunch for 80 people and pays a 40% deposit. Sam buys ingredients and rosters staff. If the customer cancels the night before, Sam may have a strong basis to keep some or all of the deposit, because he has real costs and may not be able to rebook that time.

But if the customer cancels three weeks out and Sam hasn't bought stock, done much planning or turned away other work, keeping a large deposit and charging another large cancellation fee may be harder to justify.

Your cancellation terms should answer:

• how much notice the customer needs to give;
• whether different fees apply at different stages;
• what happens if the customer postpones instead of cancelling;
• whether the fee is based on costs, a percentage of the price or a fixed amount;
• whether any part of the deposit will be refunded.

For consumer-facing businesses, don't describe cancellation fees in a way that misleads customers about their rights under the Consumer Guarantees Act 1993. If the cancellation is because your business failed to provide the service properly, the customer may have rights to a remedy.

How Do You Make Your Payment Terms Easier To Enforce?

Your payment terms are easier to rely on when they're written clearly, accepted before work starts and followed consistently.

You don't need legal jargon. In fact, simple wording is usually better because the customer can understand what they're agreeing to.

Put The Terms In The Right Place

Your deposit and payment terms can sit in your service agreement, customer terms and conditions, quote terms, online checkout terms, booking terms or statement of work.

The right document depends on how customers buy from you. If you sell online, your checkout process should require customers to accept your terms before they pay. If you send quotes, attach or link your terms and ask for written acceptance.

Keep Your Quotes Consistent With Your Terms

Your quote shouldn't say one thing while your terms say another. If the quote says payment is due on completion but your terms say 50% upfront, that inconsistency can cause problems.

Make sure your sales emails, invoices and booking pages all use the same payment structure.

Use Plain Payment Triggers

Avoid vague wording like payment due soon or deposit required before commencement if your customers might not know what that means. Use clear triggers such as:

• Deposit due within 7 days of accepting the quote.
• Work starts once the deposit has cleared.
• Final payment due before delivery of final files.
• Booking isn't confirmed until the deposit is paid.

Be Careful With Standard Form Contracts

If you use standard business terms and conditions that customers don't really negotiate, the unfair contract term rules under the Fair Trading Act 1986 may apply, especially for consumer contracts and small trade contracts.

A term may be unfair if it creates a significant imbalance, isn't reasonably necessary to protect your legitimate interests, and would cause detriment if relied on. A one-sided deposit term that lets you keep large amounts in every scenario may attract scrutiny.

Balanced drafting helps. For example, your terms can protect you when a customer cancels late, while still allowing refunds where your business hasn't incurred costs or where you haven't supplied the service.

Keep Records

Keep copies of the quote, accepted terms, invoices, payment receipts, emails and any cancellation messages. If a customer later argues about what they agreed to, these records make it easier to show the deal clearly.

Key Takeaways

• You can usually wait for a deposit before starting work, as long as that requirement is clear before the customer accepts.
• A non-refundable deposit can be lawful, but blanket wording can be risky, especially for consumer customers.
• Your deposit amount should match your upfront costs, booking risk and the work you'll do before final payment.
• Cancellation fees should be reasonable and shouldn't punish the customer beyond your real loss or legitimate business interests.
• Clear written terms, accepted before work starts, are much easier to rely on than informal payment conversations.
• New Zealand laws like the Fair Trading Act 1986 and Consumer Guarantees Act 1993 can affect how you word deposit and refund terms.

If you'd like help with your customer terms, deposit clauses, cancellation fees or upfront payment terms, you can reach us at 0800 002 184 or team@sprintlaw.co.nz for a free, no-obligations chat.