Refunding Customer Deposits

Cabinetmakers discuss the ethics and business sense of refunding all or part of a deposit when the customer backs out of the deal.December 28, 2005

I have a customer who put down a deposit for a kitchen over a year ago with me. Over the past year, I have had almost no luck in reaching this person about starting this kitchen. They put it on hold at first, then have been hard to contact. Now, a year later, they left a phone message for me that they are financially unable to do the kitchen at this time and want to back out.

I don't want to just keep their deposit, but I do have some design time and materials that I have been holding for a year that I feel I need to be compensated for, but in this situation, what is the standard?

Forum Responses
(Cabinetmaking Forum)
From contributor A:
As with all business deals, minimize the damage to both parties involved. You should have a per hour cost of doing business for the time spent working for the customer. Whatever you did, driving, designing, pickup materials, drawing, write down a cost for it, and add any special hardware or materials you cannot recycle through your shop. Call the deal terminated and send them the balance from the deposit, if any. If there are some materials or cabinets you cannot use, but the customer paid for from the deposit, make an offer to customer that they can come and pick them up. Itemize everything on invoice. You will need it for the irate customer who tries to take you to court. Create a paper trail for every business deal, even for family and friends.

From contributor B:
This has never happened to me, but I agree with contributor A. Just treat these people fairly and thatís the best you can do.

From contributor C:
I'm sure they're not happy about the whole thing and most likely a bit embarrassed about their current situation. Unless they specifically said they want all their money back there's no reason to assume they expect it. That is the whole idea behind a deposit. I would approach them about the reasonable time and material (with 0% markup) that you have invested in it and you will all hopefully agree on a way for you to refund them some but not all of their money.

From contributor D:
I use to struggle with this problem myself. I would get the job only to lose it for one reason or another. About 15 yrs ago, I started telling my clients that the deposit is non-refundable. Since then I have only had 3 clients try to back out. In only one case I gave the deposit back because there house burned down and they had been with me for 6 years and I had made a lot of money with them. They were stunned that I gave it back. I am not that cold hearted. They rebuilt and I got a really good friend and really great client out of that one. I guess what I am trying to say is business is business, and you must always remember that your family still needs to be taken care of. What if you got 5 jobs lined up and they all said they want out of the deal? What would you do - how would you make up for that time lost and lack of money that you just gave back? This can happen - it happened to me. Five of my best clients said they needed to back out of deals at the same time. Just think if that was you and you gave back the $35,000 you were sitting on to just get the design and paper work going. Those 5 jobs were a full year of work and I turned down 3 jobs the week before. What would you do? I gave them an extension in start times and told them the price would probably be different (as in up in price). They all agreed to the new terms, I got a mini vacation, and was back to work in 1-1/2 months.

From contributor E:
I have a line in my contract that states all deposits are non-refundable. The one time I had someone back out then threaten to sue, (she'd paid $500 deposit for design drawings only), I sent a bill that included my time and cost for going to her jobsite for measurements and the time involved with completing her drawings. This bill came to $800. I sent that with a letter that stated she was not eligible for a refund. I would suggest talking to your lawyer, should you get in any situations like this, so you don't do something stupid.

From contributor A:
I had a client a year or so ago who wanted eight custom display boxes for Indian artifacts. Since I didn't know how she operated, I built one first, just to test the waters. She approved of it and gave the go ahead for the other seven. I requested an advance on them, which came. I delivered the boxes. They were not ready to have me mount them. A month went by. I then requested payment for the balance, less installation. Then all hell broke loose. Nothing about the boxes was right. The client, an attorney herself, said she had other contractors who didn't do work to her satisfaction, and they lost out. I decided it wasn't worth the emotional strain to fight her. I gave her $4000.00 and took back the boxes.

From contributor F:
I write in my contract that if the client cancels, they are financially responsible for all material and labor on the project to date plus a 25% cancellation fee. As the others have said, you have to account for the gap you will have in your schedule, finding other work, etc. It's fair to you and them.

From contributor G:
My policy is to fully refund, unless there are materials ordered for this project and are likely unusable anywhere else, which are then charged at cost. I've had a few projects back out, and have always resulted directly in great referrals, or in resumption of the project when the financial crisis passed. Imagine if the roles were reversed - you'd want as much kindness and understanding as possible.