Should deposits be refundable?

When you pay a deposit, you are paying a percentage of a product or service price. Paying a deposit shows that you intend to buy the item, and it means you are entering into a contract with the business. When you pay a deposit, you and the company agree:

  • the exact product or service that you are buying
  • the deposit amount
  • when the balance has to be paid
  • the date that the product or service will be provided

It is essential to make sure that you and the business are clear about all the details. Ask for written confirmation that includes all of the information above.

Ensure you are clear about the business’s obligations to you – in particular, confirm exactly what the product is and when it will be delivered or available to you. This can be very important when you buy something expensive that might have to be custom made for you, such as a piece of furniture. Ensure you are both clear about the details, like the colour and style, and ask the business to confirm this in writing on your receipt. If you need advice on your wedding photography, check out our photography packages and services at Wild Romantic Photography.

If the business tells you that your delivery will be delayed, you should try to agree on a new, reasonable delivery date. If the product is delivered and is not what you ordered, you should contact the business immediately to arrange for it to be changed. In these situations, you need to have written confirmation for proof of what you ordered.

When Can I Ask for a Refund of My Deposit?

You have a right to ask for your deposit back if:

  • you cannot agree on a new delivery date
  • the new delivery date suggested is much later than you originally agreed
  • the business fails to meet the new agreed delivery date
  • the company cannot give you the item you decided to buy

If the business refuses to return your deposit, you may have to take legal action to get your deposit back.

If I Change My Mind About Buying the Item or Service, Can I Get My Deposit Back?

The contract obligations both ways, so the business doesn’t have to return your deposit if you change your mind. For example, if you paid a promise to a shop to hold an item for you and later decide you don’t want the thing, the shop may not be obliged to refund your deposit. If you signed a contract, there should be details in the terms and conditions about paying a deposit and whether a refund is possible.

What Happens If the Shop Goes Out of Business?

If you pay a deposit and the shop goes out of business, it may be tough to either get the item or get your deposit back. Suppose the company goes into liquidation or receivership. In that case, you become a creditor, but other creditors such as staff, the Revenue, banks etc., are likely to take priority in terms of payments.

It would help if you always tried to pay a large deposit using a debit or credit card. If you pay for items using a card, and the shop goes out of business, contact your card provider straight away with details of the transaction and request a chargeback. Check out our range of wedding photography for your wedding day.

Refundable Deposits


The term refundable deposits refer to cash collected from credit customers that a company expects to return after a specified period or when certain conditions are satisfied. When companies collect this money, the intention is to return it after a relatively brief period. Following the cash receipt, the company would classify the refundable deposit as a current liability on the balance sheet.


Current liabilities are defined as debts that must be paid within one year or one operating cycle, whichever is longer. Refundable deposits are part of a larger group of liabilities from advance collections, which is a component of the company’s determinable liabilities since it’s both known to exist and can be measured precisely.

Refundable deposits are typically collected when a company extends credit to a customer and the company does not have any information on their creditworthiness. For example, utilities usually provide service in advance of receiving payment. That is to say, an electric or gas customer pays their utility bill after they’ve consumed this energy. Through this arrangement, the utility is extending the customer credit.

If the utility does not have sufficient information to understand the customer’s credit risk, they may require a refundable deposit. Once the customer has demonstrated they do not present a risk of non-payment, the utility will return the deposit or credit their account. If the customer does not pay their bills, they can use the deposit to offset these bad debts.

When a company collects this money from a customer, there is an increase in cash and a corresponding increase to the current liability refundable deposits.

Can a Deposit Be Non-Refundable?

Just because something is written in a contract, it doesn’t mean it is always legally binding, as businesses ordinarily cannot rely on unfair terms. Only in certain circumstances can companies keep your deposit or advance payments or ask you to pay a cancellation charge. If you cancel the contract, the business is generally only entitled to retain or receive an amount sufficient to cover their actual losses that directly result from your cancellation. This could include costs already incurred or loss of profit.

What Is a Non-Refundable Deposit?

Should deposits be refundable?

A deposit is part of the total cost of something or an advance payment paid for at the time of booking. Businesses will sometimes insist it’s non-refundable if you cancel and even write it into the contract. But a company can only do this if the contract term is fair.

A non-refundable deposit is where a buyer pays a fixed fee before a business provides services. Generally, this fee cannot be returned to a buyer if they decide to cancel the service. For example, a photography business could ask you to pay $3000 for their services and $600 as a deposit. This fee arrangement is to protect the company from a ‘change of mind’. Businesses use non-refundable deposits as an extra layer of protection from any sudden cancellation of services. It is essential to remember a non-refundable deposit should be reasonable and protect a legitimate business interest. Also, a retailer’s ‘no refund’ sign is different from a non-refundable deposit. Unlike a non-refundable deposit, this is illegal and in breach of the consumer guarantees outlined in the Australian Consumer Law (‘ACL’). 

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When Does a Non-Refundable Deposit Become an ‘unfair’ Contract Term?

Non-refundable deposits are allowed when a buyer is aware of the fee before signing the contract. The payment should also not be an ‘unfair contract term. The non-refundable deposit should be in proportion to the business’s costs and time and not penalise the buyer as ‘unfair’. An unfair contract is a contract between two parties that significantly benefits one person over the other. It is not necessary for all of the terms in a contract to be unfair. One clause can still be ‘unfair’ under the Australian Consumer Law (‘ACL’). If the term is unfair, it is excluded from the contract, and the contract operates as usual without the clause. 

When Does a Non-Refundable Deposit Amount to Misleading and Deceptive Conduct?

A non-refundable deposit could be misleading or deceptive if a buyer is not aware of the fee before entering into a business transaction. Therefore, the cost should not create a false impression that would mislead the ordinary consumer. The Federal Court rejected a claim by the Australian Competition and Consumer Commission (‘ACCC’) against TPG Internet Pty Ltd (‘TPG’). For background, the ACCC commenced proceedings against TPG for misleading and deceptive conduct and unfair contract terms in December 2018, about ‘prepayments’ for terms set out in their telecommunication services. 

For businesses, the main questions to ask are:

  • Is the customer aware of the non-refundable deposit fee?
  • Does the non-refundable deposit fee protect a legitimate business interest? (i.e. proportionate to the business expenses and time incurred)

When Can a Deposit Be Kept?

Typically, the business has no entitlement to keep any amount that can be saved by finding another customer or cancelling any other suppliers they’ve employed. That would likely constitute an unfair contract term under the Consumer Rights Act.

For example, if you booked a holiday which then sells out, and the company finds another customer to take your place, it’s likely the only amount it can legitimately withhold from your deposit will be administrative costs. But, if you cancel at unreasonably short notice and the business can’t find another customer, you could expect the company to keep most – if not all – of your deposit.

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Was it a Genuine Reservation Fee?

If the deposit you paid was a reasonable and genuine reservation fee and not an advance payment, it might be kept by the business as a payment for that reservation. But, importantly, such deposits will only ever be a small percentage of the overall price in most cases.

Do I Have to Pay a Cancellation Charge?

A cancellation charge is similar to a deposit, but instead of paying up-front, you agree to pay a fee if you cancel the contract. But, it is not necessarily fair just because it is in the agreement you signed. If you are faced with a cancellation charge, it needs to be reasonable.

Cancellation charges should be a genuine estimate of the business’ direct loss. So you’re clear on any costs, you may want to query the cancellation charge and check when it would apply before signing a contract.

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, as a business owner, a deposit can be non-refundable if specific criteria are met.  

Meeting the Non-Refundable Criteria

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

Documenting the Deposit Correctly

Not only does a business need to ensure that a non-refundable deposit is reasonable and proportionate in the circumstances, but they must also ensure they disclose all relevant information regarding the non-refundable deposit to their customers or clients. A business must 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 similar) provided to the customer or client at the time of, or before, 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 being used by the company. You can also reiterate this to the client or customer when you request the deposit’s payment. Transparency is key! At Wild Romantic, we have the best wedding photographer in Mornington Peninsula to capture every single moment on your wedding day.

But how does it work in real life?

Should deposits be refundable?

By way of an example – let’s say you are a photographer who charges $300 for a photoshoot, with a non-refundable deposit of $100 payable before confirming the booking. Your Terms and Conditions (which your client signed and returned before engaging you) state that the deposit is non-refundable and outlines that it is calculated concerning your business incurs’ actual costs. Your client cancels the booking two days before the shoot. They allege that your business cannot retain the non-refundable deposit. In these circumstances, whether you can have the deposit would depend on (as a minimum):

  • Whether your Terms and Conditions properly explain that the deposit is non-refundable;
  • Whether you have appropriately engaged your client/customer (by providing them with the Terms and Conditions and making sure they have read and acknowledged them);
  • Whether the amount of the non-refundable deposit is reasonable, concerning 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.); and
  • Whether the non-refundable deposit is proportionate to the overall cost of the product or service, you provide.

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 $100 may likely be considered to be a reasonable and proportionate amount. 

The Consequences 

What happens if a business fails to disclose the terms of the non-refundable deposit or doesn’t take the time to ensure they are charging a reasonable and proportionate amount? The customer or client may be entitled to get that deposit back, and the business will not be allowed to be compensated for the loss they have suffered for the time, effort and costs incurred up until that point in time.  

Challenge Unfair Terms

The Competition and Markets Authority (CMA) advises businesses to consider the following to avoid potential challenges of unfair terms from customers:

  • a deposit is to reserve the goods or services and is no more than a small percentage of the total price
  • advance payments reflect the business’ expenses and leave customers with a reasonable amount still to pay on completion
  • customers do not lose large advance payments if they cancel, in all circumstances
  • it’s a best practice that businesses set sliding scales of cancellation charges, so they cover their likely losses directly from the cancellation

What Every Business Should Do

Suppose you are a business owner who wants to charge non-refundable deposits. In that case, you should obtain advice from a specialist business lawyer regarding the drafting of your Terms and Conditions and assess the reasonableness of the amount you want to charge. Unfortunately, this is another circumstance where you cannot use terms that you have sourced from Google, as they are not customised to your business, which will affect the likelihood of the enforceability of the provisions. 

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Non-refundable deposits can be used by businesses when adequately disclosed to the buyer before entering the transaction. The total amount must also reflect a legitimate business interest. Therefore, the deposit fee should not ‘penalise’ consumers and not be significantly disproportionate to the actual business costs and time incurred for the services provided. Businesses need to stay vigilant and remain compliant with consumer regulation to avoid any potential disputes or incur heavy penalties. We suggest companies consult with one of the Consumer Lawyers for tailored advice and assistance suited to their business needs.