How do you all deal with DEPOSITS

<p>Hello,</p>

<p>I just got a $700 deposit (half of the total) to do a big event from a new client.<br>

I am growing my very very new business. I don't have much petty/reserve cash .... so I wanted to know how you guys deal with deposits ..... when even that deposit is for you to get equipment together, pay rent, eat ... all of that. <br>

What are your policies to protect yourself and be fair to the client at the same time?<br>

If they cancel? Reschedule? Etc. How do you return it to them, when maybe you already have used half of it to book some special equipment?</p>

<p>Thanks,<br>

Rob</p>

<p>I'd suggest you check how "a deposit" must be treated in your legal jurisdiction. Some jurisdictions require that they be held in a separate bank account and remain untouched until the service is rendered, others may differ.</p>

<p>My business is small. When people want to book a family beach portrait in advance, part of my policy that I email them is...<strong>I require 1/2 the fee to book/reserve the shoot. This fee is non-refundable unless there is a hurricane or rainy weather.</strong><strong> Wind and clouds are not reasons to cancel a shoot.</strong><br>

I usually keep the day before or after open in case of rain or a really crappy day so I can accommodate them or just in case I run into a problem, but sometimes I only get one day per family. I don't like to do this, but I also tell them that they can take a chance by not sending the deposit to reserve the shoot, but I let them know up front that if another family contacts me and is willing to reserve the same day....then they are out of luck. Rarely, have I had someone not send me 1/2 the fee up front to book a date. <br>

I have never had a $700.00 deposit, so your circumstances may be different. If you regularly shoot events for this amount then I would tell them the money is <strong>non-refundable</strong>, but re-schedule if convenient and will not result in you losing money/business from another shoot. You certainly want happy customers.<br>

Can you say what type of event? I personally try to stay away from weddings (too much stress) but I know a couple of local wedding photographers that tell the client that the booking fee is <strong>non-refundable</strong>, but I am not sure how they handle it if client cancels.<br>

Lorne's reply has me curious. I don't even have a separate account for my business. I used to just hold the check until the family arrived, but in the last year I started depositing the checks soon after I received them, because I started thinking about people canceling their trip and the check. Never had a check bounce (knock on wood) I don't use credit cards.</p>

<p><strong>''Deposit is for you to get equipment together, pay rent, eat ... all of that.'' </strong></p>

<p>The separate account is a good idea. Lawyers, for instance, are required to put client deposits in their trust account until the money is earned by providing the service, and only then can the lawyer move the earned part of the deposit from trust over to the operating account to pay for rent, etc. The contract your client signs to hire you should clearly cover how the deposit is to be handled. If it is a non-refundable fee, then the contract should clearly say so to avoid misunderstandings and a possible lawsuit by an unhappy client later. So deal with it clearly and completely in writing on the front end, and things will go much more smoothly. </p>

<p>Not a lawyer, but I believe in most places you want to charge a "retainer" fee or "reservation fee" not a deposit. A retainer is a payment made to you to reserve the day and turn down other business that would be a schedule conflict. Whether you shoot anything or not or if the shoot gets canceled doesn't matter -- you were paid to keep yourself available on the day in question and keep the money either way. Client needs to understand that up front, and in writing. As far as "deposit is for your to get equipment together," that would be a big no-no in my book. If you're holding yourself out as a professional, you should already own the equipment you need for most shoots and have used it enough to know how to deliver professional quality results. There's no problem with renting gear for a shoot, especially if it's something special that you don't do every day. But if money is so tight that could can't buy/rent the gear that you need without using up-front money from the client, you are running a huge risk of getting in way over your head. Part of the idea of a deposit/retainer is if you have laid out cash for materials (more a situation back in the film days when you had to buy film and pay to have it developed and proofed), you were at least covered for out-of-pocket costs if the client stiffed you. But there are concepts in business called capitalization and cash flow, and you have to have some skin in the game before you start playing with other people's money.</p>

<p>Regarding a cloudy day... what if client does not want clouds or wind or gloomy day? "non-refundable" for any reason? What if photog is hit by a bus, or dad taken to hospital and is about to kick the bucket, or you get diarhea, or your equipment is stolen, or your studio burns down.</p>

<p>Guess what? All of those events did happen for real to photogs. 2 local photo studios burned down; one next to a pizzeria where fire started, other airconditioner exploded as it was 100 in Summer. My bro hired a photog who chose not to shoot the wedding but sent his 23 year old son.</p>

<p>If you spent money on equipment, then it's your business expense, not a deposit. Weddings do get cancelled. Are you saying if a storm hits on wedding day, you reschedule for next day?</p>

<blockquote>

<p>Regarding a cloudy day... what if client does not want clouds or wind or gloomy day?</p>

</blockquote>

<p>That's their problem. He already laid out his policy. How many photographers can run a profitable business that ONLY shoots on sunny totally cloudless days? I am addicted to shooting landscapes on days like that and I can tell you for a fact I would NOT want my business to depend on perfectly cloudless days... let alone weekends. Think about it. The guy probably only shoots events like that on weekends. Then presumably he only shoots them on weekends in the late spring and summer. That is very few days to shoot. If you give clients the ability to bail on partly cloudy days at no cost the guy is going to work 10 days all year... for that type of work.</p>

 

<blockquote>

<p>If they cancel? Reschedule? Etc. How do you return it to them, when maybe you already have used half of it to book some special equipment?</p>

</blockquote>

<p>You answered your own question. Not every small business is entitled to survive. Part of being in business is running a responsible business. You need to get a SBA loan or some type of revolving credit line that you can access in an emergency. What if a client cancels for a reason you don't think is valid and you keep the deposit. If the client sues what money are you going to use to hire a lawyer and defend yourself? You have to properly capitalize yourself. I'm sure Enron didn't start off as a den of thieves. But somewhere along they way someone needed a little extra cash and started moving money around accounts. Those types of things snowball. What's going to happen is everything will be okay for awhile. Then you will get a problematic client who will want the deposit back. You will refuse. You will have already spent it. Then they will sue you. So you use someone else's deposit to hire a lawyer. You lose in court and now you have to pay the client and court costs. So you use yet another person's deposit, etc.</p>

<p>You have to get properly capitalized and stay ahead of a scenario like that.</p>

<p>Don't use client funds that have not completely vested for anything. </p>

<p>This is a very simple question with a very complicated answer. It will be a good idea to have a consultation with a local CPA in your area who might explain to you how the rules and regulations regarding things like bookkeeping and sales tax work there. I cannot tell you, for example, when the money you receive from a client is actually yours. I think this is at the heart of the original question. To paraphrase, "If the client's money is not all mine, and I haven't met my obligation to earn it, then how much of it might I keep if the project goes South?" You can see how personal integrity, a concern for the reputation you earn for yourself in the customer world of public opinion, and your own attitude toward money blend into a very complex and personal answer! </p>

<p>A principle worth considering is that you will not spend any money you bring in until you can put it on your books as genuine income. (Ask this as a direct question for the CPA: Now that you understand how I expect to be paid, when is the money I take in really income?) If you think your client can make you give money such as a deposit back, set it aside until you are sure it's yours. The first day you perform actual work for a client on his project is a good marker for the beginning of billable time. Another marker is the date you put on your Invoice for him. Your Invoice shows that you have accepted the project and publishes your demand and terms for payment. (BTW: Sales tax you collect is NEVER yours!)</p>

<p>Someone wrote in about a problem they had in Pennsylvania. All sales tax collected must be turned over to the State within 30 days after receiving any payment. The sales tax on a deposit for a future project could be due before the work ever begins. (Ask your CPA: Does my State expect me to turn over sales tax for a project when I receive my first payment or my last one? What if payments fall in different reporting periods? How can I accept earnest money without having it prove the project has begun?) Sales tax turned over to the State would be very difficult to get back if the client backs out. Are you allowed to put the money in an escrow account so the it still belongs to the client until the project actually begins so you can return all of it you need to without pulling some out of your own pocket? </p>

<p>Does any of this apply to you? I have no idea. You didn't even give a location where you work. Ask your CPA. Part of what you do may be taxable and the rest not. Get your head around this. You must understand that the the rules of this road are mostly State controlled. Every place is different. If you have a SCORE chapter reasonably close to you talk with one of their counselors. Helping you is what they do.</p>

<p>As my deposits are non refundable, I invest it into my business and grow it using their money. The only way the client can get their deposit back from us is if we cancel, which has never happened.</p>