Let's Talk about Deposits for Pre-Ordered Balloons, Decor, or other Services that your Company Offers

Who said running a business is easy? As a small business owner, you truly need to be a master of all trades and let's face it, the business side of running a business is not easy, nor is it everyone's favourite job! 

Today, I thought that we would look at DEPOSITS for the goods and services that you offer. I often see posts on Facebook groups asking if they are permitted to keep a customer's deposit if they cancel their order or booking? 

It is common to ask customers to pay a deposit for pre-ordered balloons, decor, or other services that your company offers. This is a way that you as a company can secure a booking or rental items for a specific date in the future. 

When your customer pays a deposit, they are entering into a contract with you, the trader. The agreement can be made verbally or in writing. As parties to the contract, you and the customer have certain legal rights and obligations. The terms of the contract are a matter between you and your customer.

The following points should be considered when creating a contract:

• How much the deposit will be – this could be a set amount or a percentage of the total cost
• Payment date when the balance will be due
• If there are instalments, how much each payment will be
• Details of the exact product or service they are buying – for example, the  product's colour or style or how the service will be performed
• The date the product or service will be provided – for example, when will a product be delivered or the work completed
• In what circumstances the deposit will be refunded (either fully or partially)
• Is there any non-refundable amount or cancellation charge

Contracts should be supplied to the customer in a tangible format (for example, hard copy or email). Plus, you should always offer a receipt showing the deposit amount paid.

The terms of this contract must be clear and fair. Terms that may be considered unfair can include:

• Deposits are non-refundable in all circumstances
• If you cancel, you must pay all the trader’s expenses plus the anticipated gross profit. However, the trader is generally only entitled to keep an amount that covers the losses, Which result from your cancellation. This could include costs already incurred or loss of profit (for example, where you cancel at short notice).

So when is a deposit truly non-refundable?

The term, non-refundable deposit is often used by business owners, but just because a deposit is referred to as non-refundable does not mean that it is. Conversely, a deposit can be non-refundable if specific criteria are met as a business owner.

Meeting the Non-Refundable Criteria

Business owners need to be careful how they charge a non-refundable deposit to ensure that it meets the relevant criteria. Non-refundable deposits are intended to protect a business in circumstances in sudden cancellation circumstances and compensate the business for the time, effort, and money expended up to that point. Therefore, it is crucial for a business to ensure that the non-refundable deposit they charge in these circumstances is reasonable and proportionate with reference to protecting their legitimate business interests and is not excessive or used as a ‘penalty’ against a customer or client. Of course, what will be considered reasonable and proportionate will depend on the specific circumstances and will be different on a case-by-case basis.

Documenting the Deposit Correctly

A business needs to ensure that a non-refundable deposit is reasonable and proportionate to the circumstances. Still, they must also ensure they disclose all relevant information regarding the non-refundable deposit to their customers or clients. It is crucial for a business to disclose the terms of the non-refundable deposit accurately. Otherwise they may be seen to be engaging in misleading or deceptive conduct, which is against the law. 

At a minimum, the business must disclose the terms of a non-refundable deposit in a Terms and Conditions document (or something similar), which is provided to the customer or client at the time of, or prior to, engaging them. Even better, the business should also seek to obtain an acknowledgement from the client or customer that the non-refundable deposit is reasonable and proportionate in protecting the business legitimate business interests. Again, this can be incorporated into the Terms and Conditions document the business uses. You can also reiterate this to the client or customer when you request the deposit payment. Transparency is key!

But how does it work in real life?

Let’s say you are a balloon artist who charges £500 for agreed decor with a non-refundable deposit of £150 payable prior to booking confirmation. Your Terms and Conditions (which your client signed and returned prior to engaging you) state that the deposit is non-refundable and outlines that it is calculated with reference to the actual costs that your business incurs (consultation time, pre-ordering balloons, helium, and other materials.) Your client cancels the booking two days before the event. They allege that your business cannot retain the non-refundable deposit. In these circumstances, whether you can retain the deposit would depend on (as a minimum):

• Whether your Terms and Conditions properly explain that the deposit is non-refundable
• Whether you have properly engaged your client/customer (by providing them the Terms and Conditions and making sure they have read and acknowledged them)
• Whether the amount of the non-refundable deposit is reasonable, with reference to the actual costs that your business has incurred (including things like the time involved in making the booking, the loss of profit if you are unable to re-book the session, any other costs that you have incurred etc.)
• Whether the non-refundable deposit is proportionate to the overall cost of the product or service that you are providing.

Without knowing any further information, on the above facts alone, it would appear that the deposit would be non-refundable, as the document requirements appear to have been met, and £150 may likely be considered to be a reasonable and proportionate amount. 

Having good terms and conditions that relate and are customised to your business is vital for all businesses, no matter how small a business you are. When it comes to deposits make sure that you make your customers aware of them, especially if they are non-refundable. If in doubt, talk to a professional to ensure that your terms are transparent and that what you are charging is reasonable and proportionate.

I hope this helps and gives you a better understanding of what is required when taking deposits from customers and whether you are legitimately entitled to keep them should a customer cancel their order.

Happy Ballooning! 

Sue

www.suebowler.com

Follow me @suebowler