How to Invoice for 50% Deposit in QuickBooks

Requesting a 50% deposit before work begins is a smart step to protect your cash flow and secure client commitment. In QuickBooks Online, you can manage this process cleanly, ensuring your books are accurate from project start to finish. This guide walks you through the two best methods for creating and tracking a 50% deposit invoice, one using the built-in Progress Invoicing feature and another using a simple two-invoice approach.

Why Requiring a Deposit is a Good Business Practice

Before jumping into the "how-to," it’s worth clarifying why this process matters. For service-based businesses in particular, taking a deposit solves several key problems:

• Cash Flow Management: Deposits provide upfront cash to cover initial project expenses like software, materials, or contractor fees. This prevents you from funding a client's project out of your own pocket.
• Reduces Risk of Non-Payment: A client who has already paid a substantial deposit is far more likely to pay the final balance. It filters out non-serious inquiries and reduces the risk of you completing a project only to have the client disappear.
• Establishes Commitment: The act of paying a deposit signals that the client is serious and ready to move forward. This financial commitment solidifies the working relationship and gets the project started on solid ground.

Handling these deposits correctly is key to keeping your financial records accurate, especially for recognizing revenue under GAAP standards.

Method 1: Using Progress Invoicing (The Recommended Method)

If you're using QuickBooks Online Plus or Advanced, the Progress Invoicing feature is the most efficient and professional way to handle deposits. It directly links the deposit, the initial estimate, and the final invoice together, creating a clear audit trail for the entire project. This keeps your project accounting accurate and easy to follow.

Step 1: Make Sure Progress Invoicing is Turned On

First, you need to enable the feature in your settings. If it's already on, you can skip this step.

1. Navigate to the Gear icon in the top right corner and select Account and settings.
2. Click on the Sales tab on the left-hand menu.
3. Find the Progress Invoicing section and click the pencil icon to edit it.
4. Check the box that says Create multiple partial invoices from a single estimate.
5. Click Save and then Done.

With this setting enabled, a single estimate can now generate multiple invoices, which is perfect for a deposit and final payment structure.

Step 2: Create a Detailed Estimate for the Full Project

The foundation of this method is a solid estimate. You aren't creating an invoice for the deposit directly; you're creating an invoice from an existing estimate for the full project scope. This practice ensures all project revenue is tied to the original quote.

1. Click the + New button and select Estimate.
2. Fill in the customer’s information and the estimate date.
3. Carefully add all the products and services that will be part of the project as individual line items. Enter the full price for each line item. The total of the estimate should equal 100% of the project cost. For example, if the project is $10,000, the estimate total should be $10,000.
4. Review the estimate for accuracy and click Save and send to your client for their approval.

Once the client accepts the estimate, you can proceed to invoicing the deposit.

Step 3: Create the 50% Deposit Invoice from the Estimate

With an accepted estimate in place, QuickBooks does the heavy lifting for you.

1. Open the estimate you just created.
2. In the top right corner, you'll see a green button labeled Create invoice. Click it.
3. A new window will appear asking how much you want to invoice. You’ll have a few options:
   • To invoice for the total estimate (100%).
   • To invoice for a custom amount for each line.
   • To invoice for a percentage of each line. This is the one you want.
4. Choose to invoice for a percentage of each line, and in the % field, enter 50.
5. Click Create invoice.

QuickBooks will automatically generate a new invoice. The total on this invoice will be exactly 50% of the estimate's total. In our $10,000 example, this invoice will be for $5,000. The line items will reflect this, showing 50% of the agreed-upon quantity or rate. You can now send this invoice to your client.

Step 4: Invoice for the Final Balance

Once the project is complete, it's time to collect the remaining 50%.

1. Navigate back to the original estimate. You will see its status now indicates it's partially invoiced.
2. Click Create invoice again.
3. This time, when the pop-up appears, you will have an option for the Remaining total of all lines. Select this option.
4. QuickBooks will generate a second invoice for the remaining 50% of the project total.

The beauty of this method is that the estimate will show you a complete summary: the total project amount, the value of invoices created from it, and the remaining balance. It's a clean, self-contained record of the entire project scope and billing history.

Method 2: Two Separate Invoices (For QuickBooks Essentials/Simple Start)

If you don't have access to Progress Invoicing or prefer a more direct approach, you can use the two-invoice method. This technique requires a quick one-time setup of a special item in your Products and Services list and works perfectly for any version of QuickBooks.

Step 1: Set Up a "Customer Deposit" Liability Item

From an accounting perspective, a deposit is not yet earned revenue—it's a liability you owe the client until the work is complete. Setting it up this way keeps your books in line with GAAP principles.

1. Navigate to the Gear icon and select Products and services.
2. Click New and choose Service.
3. In the Name field, enter something clear like "Customer Deposit" or "Project Prepayment".
4. Skip the "SKU" and "Category" fields unless you use them for internal tracking.
5. Crucially, under the Income account dropdown, select the small arrow to + Add new.
6. A new window will open to create a new G/L account.
   • For Account Type, choose Other Current Liabilities.
   • For Detail Type, choose Client Trust Accounts - Liabilities or a general Current Liability.
   • For Name, enter "Customer Deposits" or "Unearned Revenue."
7. Click Save and Close on the new account setup screen.
8. Back on the product/service screen, ensure "I sell this product/service to my customers" is checked and leave the Sales price/rate field blank as this will vary per project.
9. Click Save and Close.

You now have a non-taxable item you can use to track all incoming client deposits correctly.

Step 2: Create the First Invoice for the 50% Deposit

Now, create your first invoice specifically for the deposit amount.

1. Click + New and select Invoice.
2. Select your customer.
3. In the Product/Service column, select the "Customer Deposit" item you just created.
4. In the Description field, be specific. Write something like: "50% deposit for Project Title & Scope, as per Quote #123."
5. In the Amount field, enter the exact deposit value (e.g., $5,000 for a $10,000 project).
6. Double-check the details and click Save and send.

When you receive the payment, the accounting entry will debit your bank account (an asset) and credit the Customer Deposits liability account, correctly showing that you hold funds for work yet to be completed.

Step 3: Create the Final Invoice and Apply the Deposit

When the project is done, you'll create a final invoice that lists the total services provided and then subtracts the deposit already paid.

1. Click + New and select Invoice again.
2. On the first line item, add the primary product/service for the full project value. For example, "Web Design Services" with an amount of $10,000. This is to ensure you recognize the full revenue for the project.
3. On the second line item, select your "Customer Deposit" item.
4. In the Amount column for this second line, enter the deposit amount as a negative number (e.g., "-$5,000").

The invoice total will now be the remaining $5,000 balance owed by the client. The invoice clearly shows the total project cost, the deposit applied, and the final amount due. This transparency makes it easy for your client to understand.

When this final invoice is paid, QuickBooks correctly removes the liability from the "Customer Deposits" account and credits the full $10,000 to your sales revenue account, making your financial statements accurate.

Final Thoughts

Both the Progress Invoicing and the two-invoice method will effectively help you collect a 50% deposit in QuickBooks. Progress Invoicing offers a more integrated and automated workflow for those with Plus or Advanced plans, while the manual method gives you precise control over the accounting entries and works with any subscription level.

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