It is vital to be able to differentiate between which payments are deposits and which are payments on account of services or products to be provided.
Deposits are payments made to secure a benefit or service at the expense of others, and are usually non refundable. A typical commercial example of this is a deposit of the agreed purchase paid on a property transaction at point of exchange which removes the property from the market while relevant searches are made. If a purchaser then pulls out of the purchase without good reason, then usually contract provides for the deposit to be kept by the seller. Deposits can be represented in such percentage terms or be a fixed fee.
Payments on account, on the other hand, are up front payments made (sometimes against invoice carrying VAT to the extent lawfully required or permitted and sometimes not), on account of part covering the agreed onward cost of services or a product to be received, as a stated condition to work comprising the service or product being commenced. If work for reasons outside the control of the purchaser is then never commenced or only completed to a part value of the payment on account, then a purchaser may be able to demand the return of all or some of the payment on account made. This might be the case even if a payment on account is described as being "non refundable" or was the subject of an invoice, because the question is more about the substance of the payment arrangements, as opposed to any particular label given to it (i.e. all surrounding circumstances will be considered).
Penalties are payments described as being required if a person, for example, does not go through with a purchase for some reason, sometimes justified by the resource allocation cost loss to the provider. The good news is that such provisions are unenforceable in many legal jurisdictions unless they represent a genuine and justifiable pre-estimate of the loss likely to be suffered by the service or product provider brought clearly to the attention of the purchaser before contracts are entered or work starts.
Given these important distinctions, great care should be taken when agreeing terms with customers and suppliers to properly and fully document the agreed intentions; and, for effective budgeting purposes, such care should also be taken when reviewing or preparing any sales literature that refers to up front or payments in general.
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