Winning new work usually starts long before you raise an invoice. A clear quote or estimate sets expectations, builds trust and protects you from disputes later. Taking a deposit secures the booking and improves your cash flow. Done well, these early documents flow neatly into a final invoice and your bookkeeping. Done badly, they create confusion about price, scope and VAT. This guide explains how to get them right as a UK sole trader or limited company, and how each step sits within your invoicing and getting paid hub.
Quotes versus estimates
The two words are often used interchangeably, but they mean different things.
- A quote is a fixed price. Once your customer accepts it, you are generally bound by that figure unless the scope changes. Use a quote when you can predict the work and costs accurately.
- An estimate is an educated guess at the likely cost. The final amount may go up or down depending on time, materials or unforeseen issues. Use an estimate for open-ended jobs such as repairs or consultancy.
Whichever you send, be explicit about which it is. State clearly what is included, what is excluded and how any variation will be priced.
What to include
A professional quote or estimate reassures the customer and reduces back-and-forth. Aim to include:
- Your business name, address and contact details (and company number if you are a limited company)
- The customer’s name and details
- A unique reference number and the date
- A clear description of the work, broken down by line where it helps
- The price per item or stage, and the total
- Whether the figures include or exclude VAT, and your VAT number if registered
- An expiry date, so prices cannot be held against you indefinitely
- Payment terms, including any deposit required
Being clear about VAT here avoids awkward conversations later. For guidance on the numbers that go on the final document, see how to write an invoice.
Taking deposits and stage payments
A deposit is an upfront payment that confirms the booking and funds early costs such as materials. Stage payments (or milestone payments) split a larger project into instalments tied to progress.
Both are sensible ways to protect cash flow, especially on long jobs where waiting until completion would leave you out of pocket. Typical approaches include:
- A percentage deposit on acceptance, with the balance on completion
- Equal instalments at agreed dates
- Payments released as each defined milestone is signed off
Set the structure out in your quote and in your payment terms so there is no ambiguity. Staged billing also smooths income and reduces the risk of a single large late payment derailing your finances.
Converting quotes to invoices
Once a quote is accepted and the work is under way, the quote becomes the basis for one or more invoices. Good accounting software lets you convert an accepted quote into an invoice in a couple of clicks, carrying over the descriptions, prices and VAT treatment so nothing is re-keyed.
A common pattern looks like this:
| Stage | Document | Amount |
|---|---|---|
| Acceptance | Deposit invoice | Deposit portion |
| Mid-project | Stage invoice | Agreed instalment |
| Completion | Final invoice | Balance, less deposit already paid |
Always show on the final invoice any deposit already received, so the customer sees the balance owing and you avoid double-charging.
VAT tax point on deposits
If you are VAT-registered, deposits matter for your VAT return. The general rule is that the tax point (the date that fixes when VAT is due) for an advance payment is the earlier of the date you receive the payment or the date you issue a VAT invoice for it.
In practice this means a deposit usually creates a VAT liability when you receive it, not when the job finishes. You should normally issue a VAT invoice for the deposit and account for the VAT in the period it falls. The remaining balance has its own tax point later. Whether this hits cash flow depends partly on your scheme, so it is worth reviewing VAT schemes and returns and choosing the right VAT scheme for your situation. Calculate VAT at the applicable rate for the supply.
Accounting for advance payments
A deposit received before you have done the work is not yet income you have earned. Under accruals accounting it sits as deferred income (a liability) until you deliver the goods or service, at which point it is recognised as revenue.
- Accruals basis: record the deposit as a liability, then release it to income as the work is completed. This keeps your accounts compliant with UK GAAP, including FRS 105 for micro-entities.
- Cash basis: many smaller sole traders simply record the money when it lands. See cash basis versus accruals to decide which suits you.
Getting this right keeps your profit figure honest and avoids overstating income in a period where the work has not actually happened.
Refundable versus non-refundable deposits
Be clear in writing whether a deposit is refundable or non-refundable, as this affects both customer rights and your VAT treatment.
- A refundable deposit is essentially a payment on account against the final price.
- A non-refundable deposit is kept if the customer cancels. The VAT position on cancellation charges can differ, so document your terms and check current HMRC guidance if cancellations are common in your trade.
Consumer law gives customers certain protections, so a non-refundable term must be fair and clearly communicated before they pay. Spell it out on the quote and on the deposit invoice.
Tracking acceptance
Always keep evidence that the customer accepted the quote: a signed copy, an email reply or a recorded acceptance in your software. This protects you if scope or price is later questioned.
A simple status flow helps you stay on top of your pipeline:
- Sent awaiting a response
- Accepted ready to deposit-invoice and start
- Declined or expired close it off and follow up
Tracking acceptance turns quoting into a measurable sales process and feeds your cash flow forecasting basics.