Customer prepayments, deposits and pre-sales
Ask customers to pay some or all of the price before you deliver. The cash arrives before your costs, so you borrow less, but you owe customers the goods or a refund until you deliver.
- No security
How it works
Instead of paying for materials and staff first and getting paid later, you take money from customers up front. Common forms are:
- Deposits: a part-payment when the order is placed, with the rest on delivery.
- Stage payments: payments at agreed points in a longer job, such as a build or a project.
- Pre-sales and pre-orders: customers pay in full for a product before you make or ship it.
- Subscriptions and memberships paid in advance: for example a year paid up front.
Tell customers before they pay what the deposit is for and when it can be refunded. If you sell to consumers online, by phone or by post, you must tell them about the conditions of any deposit before they order, and they can usually cancel within 14 days of delivery.
VAT: if you are VAT-registered, VAT is usually due when you receive a deposit or advance payment, not when you deliver. If the customer does not take up the order and you keep the payment, VAT is still due on it.
Upsides and downsides
Upsides
- Costs nothing and gives up no shares
- Cash arrives before your costs, so you need less other finance
- Pre-orders show real demand before you spend heavily
- Customers who have paid are more committed to the order
Downsides
- Some customers will not pay up front, or will want a discount for it
- Until you deliver, the money is owed to customers in goods or refunds
- Taking deposits from consumers brings information and cancellation duties
Risks
- If you cannot deliver, customers will want their money back, perhaps after you have spent it
- Spending deposits on other things can leave you short when the order is due
- Complaints and reputational damage if deliveries are late
What it costs
- How it is priced
- No cost, apart from any discount you offer for paying early
- Costs that are easy to miss
- Any early-payment discount you give to persuade customers to pay first
- VAT may be due earlier than you expect, when the deposit arrives
- Card or payment fees on the money you take
Limited by what customers are willing to pay in advance and the size of your orders.
Does it fit?
Could fit when
- Your customers already pay at the time of ordering or before delivery
- You are launching a product that customers can pre-order and pay for online or in person
- You have loyal customers or supporters who would pay in advance
Unlikely to fit when
- Your customers expect to pay on invoice after delivery
- You could not refund customers if a delivery falls through
Who can use it
- Business types: Sole trader, Partnership, Private limited company, LLP, Public limited company, Community interest company, Co-operative or community benefit society, Charity
- Open to businesses with no sales yet
- Your customers must be willing to pay before delivery
- Consumer sales at a distance must follow the cancellation and information rules
Am I ready?
What a provider is likely to ask for. Tick what you have. Your ticks stay in this browser and nothing is stored. Checklist for all own cash and no-cost
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- Clear deposit terms
- A realistic delivery plan
- Deposits tracked separately
Regulation and protections
Not a financial product. Consumer customers are protected by consumer law, including the right to cancel most distance sales within 14 days and to be told the deposit conditions before they order.
Types of provider: None needed. You agree it with your customers; Online shop and payment platforms that take pre-orders.
Also consider
Sources
- GOV.UK: Online and distance selling for businesses · checked 7 October 2026
- HMRC VAT Notice 700: The VAT guide (section 8.13, charges, deposits and fees) · checked 7 October 2026