Short answer
Take a client advance through a written project agreement that explains scope, milestone, deposit amount, delivery timing, refund rights, and how the advance is applied. Treat it as an obligation to perform, not unrestricted profit.
How to handle it
- Tie the advance to a signed scope of work and a specific delivery milestone.
- Separate project funds from general spending in the cash forecast.
- State refund, cancellation, acceptance, and change-order rules.
- Track the advance against work completed and invoice the remaining balance transparently.
Why this form of funding can work
A client advance can reduce the need for debt and align project funding with delivery. It improves working-capital planning when management reserves enough of the funds to complete the promised work rather than treating the deposit as free cash.
Credit and management focus
This is generally a customer obligation, not lender credit. Track the unearned balance, delivery milestones, refund exposure, and project costs so the business does not use one client’s money to finance another project.
Common mistakes to avoid
- Using a client deposit to fund unrelated work without delivery capacity.
- Failing to define refund rights or acceptance criteria.
- Describing a customer advance as an investment or promising a return.
What to track after funding
Use one current ledger for the agreement and update it whenever money moves. The record should make it clear which payment cycle is due, what interest has accrued, and how much of each payment reduces principal.
- Payment cycle: next due date, payment frequency, grace or cure period, and whether the cycle is interest-only, amortizing, or tied to a specific collection or milestone.
- Principal: original amount advanced, principal repaid in each payment, remaining principal, and any approved additional draw, prepayment, or write-off.
- Interest: rate, calculation method, accrual period, interest due, interest paid, and any unpaid interest carried forward under the agreement.
- Payment allocation: show separately how each payment was applied to fees if lawful, accrued interest, and principal. Do not present a payment as principal reduction when it only covered interest.
- Performance and exceptions: repayment-source progress, covenant or milestone status, missed or late payments, notices issued, waivers, and signed amendments.
Documentation to supply
Keep an organized document pack that a lender, accountant, lawyer, auditor, or future funder can review without reconstructing the transaction from messages.
- Executed promissory note and any guarantee, security, subordination, or collateral documents.
- Borrower authorization, such as board, manager, shareholder, or partner approval where required.
- Evidence of the original disbursement, including payment confirmation and the receiving account.
- Repayment schedule and a current ledger showing the opening balance, interest, principal allocation, and closing balance for every cycle.
- Evidence supporting the repayment source, such as contracts, invoices, purchase orders, collection reports, operating cash forecasts, or asset information.
- Bank or payment-processor records that reconcile to the ledger, plus receipts or acknowledgements for each payment.
- Signed amendments, consent records, default or cure notices, and material communications when the original terms change.
Questions people ask
Practical FAQs
Is a client advance a loan?
Usually it is consideration for future work, not a loan. Its accounting, tax, refund, and contract treatment should be confirmed with a qualified adviser.
How much should a project deposit be?
Base it on the upfront costs, delivery risk, and market practice for the project. The amount should be clear in the client agreement.
Turn the plan into a managed record
Set up the agreement with Realfund
Realfund helps parties organize a private funding agreement, its payment cycle, and the evidence behind it. It gives the borrower a clearer debt-management workflow and gives the lender a current, shared record of the obligation.