How to invoice deposits and stage payments
On longer jobs, waiting until the end to get paid is a big risk. Deposits and stage payments spread the money out and protect your cash flow. Here's how to set them up, what each invoice should say, and the rules that apply in construction.
On this page
Deposits, stage payments and retentions
- Deposit: money paid before work starts, often to cover materials or secure a booking.
- Stage (or interim) payment: a payment when an agreed part of the job is done, such as "first fix complete".
- Final payment: the balance once everything is finished.
- Retention: a percentage the client holds back from each payment until the work is signed off, then releases. Common on commercial construction, rarer on domestic jobs.
Agree the schedule first
Put the payment schedule in your quote or contract: how much, when, and what triggers each payment. A trigger should be something both sides can see, like a date or a finished stage, not "when the client is happy". The invoices then simply follow the plan.
The Construction Act
For most construction contracts, the Housing Grants, Construction and Regeneration Act 1996 gives you a right to interim or stage payments if the work is expected to last 45 days or more. The contract must also set out an adequate mechanism for working out what's due and when. If it doesn't, the statutory Scheme for Construction Contracts fills the gaps.
The Act doesn't apply to work for a homeowner on their own home (a "residential occupier"), so for domestic jobs your payment schedule is whatever you agree in writing.
Worked example: a £12,000 extension fit-out
Mo agrees a £12,000 job with a homeowner and this schedule: 20% deposit, 40% at first fix, 40% on completion.
| Document | Description | Amount |
|---|---|---|
| Invoice 00101 | Deposit, 20% of £12,000 | £2,400.00 |
| Invoice 00108 | Stage 2: first fix complete, 40% | £4,800.00 |
| Invoice 00115 | Completion, 40% | £4,800.00 |
| Total invoiced | £12,000.00 |
Each invoice references the job and the quote, and the final one includes a summary: "Contract price £12,000.00; previously invoiced £7,200.00 (00101, 00108); this invoice £4,800.00". That summary is what stops a customer thinking they're being billed twice.
If Mo wanted the deposit before committing to anything, he could send a pro forma first and a proper invoice once paid. Either approach works, as long as each real invoice has its own number in the sequence.
Worked example: retention
A subcontractor's stage invoice is £8,000 and the contract has a 5% retention. The contractor pays £7,600 and holds £400. Show it like this:
- Value of work this stage: £8,000.00
- Less retention at 5%: −£400.00
- Amount due: £7,600.00
Keep a running total of retentions held. Contracts usually release half at practical completion and half after the defects period. Diary those dates, because retentions are often forgotten unless you invoice for them.
If you're VAT registered
For deposits and stage payments, the VAT tax point is generally the earlier of the date you receive payment or the date you issue a VAT invoice. So charge VAT on each stage invoice as you go, not just at the end. If the work is under the domestic reverse charge, each stage invoice needs the reverse charge wording instead of VAT.
If CIS applies
The contractor makes the CIS deduction on each stage payment as it's made, on the labour part only. Show the labour and materials split on each stage invoice, as in our materials under CIS guide.
Mistakes to avoid
- Starting a stage before the previous payment arrives. Pause, politely, until it does.
- Vague stage descriptions. "Stage 2" means nothing six months later. "First fix electrics, kitchen and utility" does.
- Forgetting to deduct the deposit from the final invoice.
Example stage invoice wording
Invoice 00108 · 14 November 2026
Job: Rear extension fit-out, 9 Elm Road (quote Q-044, accepted 2 October 2026)
Stage 2 of 3: first fix electrics, plumbing and joinery complete (40% of £12,000): £4,800.00
Contract price £12,000.00 · Invoiced to date including this invoice £7,200.00 · Remaining £4,800.00
Payment due within 7 days, by 21 November 2026.
This tells the customer what's being paid for, how it links to the quote, and exactly where the job stands financially. It takes seconds to add, and it answers the questions customers most often ask before they pay.
If a stage payment is late
For business clients, statutory late payment interest and fixed compensation can apply to each overdue stage invoice separately. For construction contracts under the Construction Act, you also have a statutory right to suspend work if a sum due isn't paid by the final date for payment, after giving at least 7 days' notice. For homeowners, rely on what your contract says, and see our guide to chasing a homeowner.
Finally, keep the quote, every stage invoice and every payment together in one place. On a long job, that single file is what you'll reach for if anything is ever questioned, and it makes the final invoice quick to put together.
Frequently asked questions
Do I need a separate invoice for each stage payment?
Yes. Each stage payment should have its own numbered invoice that references the job and shows what's already been invoiced.
Am I entitled to stage payments in construction?
For most construction contracts expected to last 45 days or more, the Construction Act gives a right to interim payments. It doesn't apply to work for homeowners on their own homes.
When do I charge VAT on a deposit?
Generally when you receive the payment or issue a VAT invoice, whichever is first, so VAT is due on each deposit or stage, not just the final bill.
What is a retention?
A percentage the client holds back from each payment until the work is accepted, then releases, often half at completion and half after the defects period.
Sources
- Housing Grants, Construction and Regeneration Act 1996 – legislation.gov.uk
- VAT guide (VAT Notice 700), time of supply section – GOV.UK
- Invoices – what they must include – GOV.UK
This guide is general information, not legal, tax or financial advice. Rules and rates change, so check the linked GOV.UK pages for the current position.