The short version
- A deposit, an advance and a retainer are three different obligations. A deposit secures performance, an advance is part payment of a price not yet earned, and a true retainer buys availability rather than work.
- Calling a sum non-refundable does not make it non-refundable. It holds where it was a genuine pre-estimate of the loss a cancellation causes, and is at risk of being struck as a penalty where it was set at a level designed to punish.
- A milestone is only as strong as its acceptance criteria. Where a deliverable is accepted when the client is "satisfied", the payment date is whatever the client decides it is.
- Deemed acceptance — accepted unless rejected in writing within a stated number of business days, with reasons — is what stops silence from stalling a schedule indefinitely.
Every payment schedule is a loan from one side to the other
Before the vocabulary, the shape. Money paid before work is done is credit extended by the client. Work done before money arrives is credit extended by the supplier. There is no neutral option — only a choice about how much either side is exposed at any moment, and for how long.
Who is funding whom
Paid in arrears
Deposit, then stages
Even milestones
Paid up front
A supplier asking for money up front is declining to fund a stranger. A client refusing to pay the whole price before delivery is declining to become an unsecured creditor. Both are reasonable, which is why the answer is a schedule rather than a winner.
Deposit, advance and retainer are not synonyms
The three words are used interchangeably in commercial correspondence and describe different obligations. Which one you actually used decides what happens to the money when the deal stops.
| Term | What the money is for | If the work never happens |
|---|---|---|
| Deposit | Security for performance. | Refundable, unless the contract validly provides for retention against loss. |
| Advance, or payment on account | Part payment of a price not yet earned. | Repayable so far as unearned; the supplier keeps the value of what was done. |
| True retainer | Availability — capacity held, other work turned away. | Earned on receipt, because availability was in fact supplied. |
| Retainer, used loosely | A monthly fee for a block of hours. | An advance in substance, treated as one however the invoice is headed. |
Why "non-refundable" is a label rather than a rule
A pre-agreed sum retained on cancellation is a liquidated damages term, whatever the contract calls it. US courts test those terms the same way: was the amount reasonable in light of the anticipated or actual loss, and was that loss difficult to prove? A term that passes is enforced. One fixing an unreasonably large sum is unenforceable as a penalty on public policy grounds, contract remedies being compensatory rather than punitive.
For the sale of goods the same rule sits in the Uniform Commercial Code at § 2-718, which adds something more specific. Absent a valid liquidated damages term, a defaulting buyer recovers what they paid less the seller's actual damages, and the seller's bare retention right is capped at the smaller of twenty per cent of the total performance or $500. A large unexplained deposit on a goods contract is exposed twice over.
What decides whether the deposit sticks
What the contract says
The amount
Set to make walking away hurt
A pre-estimate of your loss
Just "deposit", unexplained
You keep your actual loss
The client can recover the excess over what the cancellation really cost you.
You keep your actual loss
The figure is right, but you must still prove it. The writing converts it into a retention right.
Non-refundable, with the reason
Struck as a penalty
Unenforceable, and the wording evidences an intent to punish rather than compensate.
Enforced as agreed
Reasonable against anticipated loss, hard to quantify afterwards, recorded at signature.
What you can keep when the client cancels
Without an enforceable liquidated damages term the defaulting party is not stripped of everything they paid. The modern rule is restitutionary: a party in breach recovers the benefit conferred by part performance to the extent it exceeds the loss their breach caused. You keep what the cancellation cost you and return the rest.
- Time already spent, at the contract rate, for work done before cancellation.
- Committed costs you cannot recover — non-refundable bookings, materials ordered to specification, subcontractors engaged.
- Lost margin on capacity you cannot refill — the head of loss most people forget to name, and the hardest to evidence afterwards.
- Not the remainder of the fee for work you will never do. That is what turns a retention into a penalty.
Service agreement template
Full text, free to read and copy — payment schedule, deposit, acceptance and suspension clauses set out as blanks to fill in rather than assumptions to discover during a cancellation.
A milestone is only as strong as its acceptance test
Milestone payments turn one large exposure into a series of small ones. Less obviously, each milestone is also a gate, and a gate that cannot be objectively tested hands the payment date to whoever is holding it.
Criteria written as "to the client's satisfaction", "professional quality" or "fit for the client's business requirements" are versions of one failure: they read as reassurance at signature and operate as unlimited discretion afterwards. Which document each line belongs in is covered in MSAs and statements of work.
An acceptance criterion that can actually be tested
- Names the deliverable and the form it arrives in — a build, a file, an environment, a printed proof.
- States a pass condition someone other than the author could apply unaided.
- Fixes who runs the test, where, and on what data or materials.
- Sets a window in business days, running from a defined delivery event.
- Requires rejection in writing, identifying the criterion that failed.
- Caps the cure-and-retest cycle — two rounds is common — and says what happens after the cap.
The cap matters more than it looks. Without one, a client who keeps rejecting holds the milestone open indefinitely while the supplier keeps working — exactly the exposure the structure was meant to remove.
What to do when the client simply never accepts
The common milestone failure is not rejection. It is silence — the deliverable goes in, the contact goes quiet, and no clause says what silence means. Deemed acceptance answers that.
The acceptance clock, written properly
Day 0
Deliverable handed over
Runs from a defined delivery event, so both sides agree what day this was.
Day 10
Objections due in writing
A rejection has to name the criterion that failed. "We are not happy with it" is not a rejection.
Day 11
Deemed accepted
Silence stops being free. Ten to twenty business days is the usual range.
Day 41
Milestone payment due
Run the period from acceptance, not the invoice, or the delay reappears one step later.
Two further triggers close the gap a client can otherwise stand in: acceptance on production use, and acceptance of any part not specifically rejected. A client billing their own customers off a deliverable has accepted it, whatever the sign-off email says. What the resulting invoice must carry is in invoice payment terms.
Stopping work for non-payment without breaching
Downing tools over a late invoice feels like leverage, and without a clause behind it, it is a breach. If that breach is material the client is discharged and gains a counterclaim that outlasts the unpaid invoice. Materiality turns on factors weighed together: the benefit lost, whether money compensates for it, the forfeiture the defaulter suffers, the likelihood of cure, and good faith.
- 1
Read your own suspension clause first
The right usually exists only because it was written in. Check the trigger, how late the sum must be, whether it is limited to undisputed amounts, and what notice is required.
- 2
Separate disputed sums from undisputed ones
Suspending over an amount the client has genuinely disputed in writing is the version that goes wrong. Suspend against undisputed arrears only, and name those invoices.
- 3
Give written notice with a cure date
State the invoices, amounts, due dates, the clause relied on, and the date suspension begins. Send it by the method the notices clause prescribes, and keep working until that date.
- 4
For goods, consider a demand for assurance
UCC § 2-609 lets a party with reasonable grounds for insecurity demand adequate assurance in writing and, if commercially reasonable, suspend performance for which they have not already received the agreed return. Failure to give it within a reasonable time not exceeding thirty days is a repudiation.
- 5
Suspend, do not terminate, and say which
Confirm in writing that the contract continues and work resumes on payment. Terminating when you only had a right to suspend converts your remedy into their claim.
The schedule that survives a real project
A workable structure is unglamorous: a deposit sized to the cost of the client walking away and justified in the clause, the balance released against milestones neither side can argue about, a deemed-acceptance window in business days, and a suspension right that never has to be used because it exists. None of it is a negotiating position; each item removes one way the money stops moving.
They get skipped because they are about failure, and the conversation happens while both sides are optimistic — which is also the only point at which they can be agreed cheaply. A deposit clause written while the relationship is good takes ten minutes. Argued about after a cancellation it takes months, and the party who drafted nothing carries the whole risk they thought they had shared.
Sources
General information, not legal advice. This guide explains how these documents and rules generally work. Law varies by jurisdiction and changes, and none of it is applied to your circumstances here. For anything consequential, consult a licensed attorney where you are.
Frequently asked
Can I make a deposit non-refundable?
You can agree that a sum is retained on cancellation, and courts enforce that where the amount was a reasonable pre-estimate of the loss and the loss is hard to prove after the event. What you cannot do is fix a figure designed to punish cancellation — that is unenforceable as a penalty. Set the number against real committed costs and lost capacity, and record the reasoning in the clause itself.
What is the difference between a deposit and a retainer?
A deposit is security against the other side not performing, and is refundable unless the contract validly provides otherwise. A true retainer buys availability — you are paid for holding capacity open rather than for work done, so it is earned on receipt. Most commercial arrangements described as retainers are advances against a monthly scope, and are treated as advances regardless of the heading.
How much deposit is reasonable to ask for?
No fixed percentage exists in law. The defensible figure matches what a cancellation actually costs you: committed subcontractors, materials ordered to specification, a booked date you cannot resell. On contracts for the sale of goods, UCC § 2-718 caps what a seller may retain without a valid liquidated damages term at the lesser of twenty per cent of the total performance or $500, which is a strong argument for writing the term.
What is a deemed-acceptance clause?
It provides that a deliverable is treated as accepted if the recipient does not reject it in writing, with reasons, within a stated period — commonly ten to twenty business days from delivery. Its purpose is to stop silence from holding a milestone open indefinitely. Customers negotiate for a longer window and for rejection rights that survive the period for latent defects; both are reasonable positions.
Can I stop work if a milestone invoice is not paid?
Only if the contract gives you a right to suspend, and then only on the notice it requires. Without that clause you rely on general breach doctrine, and stopping work over a non-material failure is itself a breach that hands the other side a counterclaim. Suspend against undisputed arrears, give written notice with a cure date, and make clear you are suspending rather than terminating.