Five Checks Before the First Payment: A Deposit Sanity Test for New UK Suppliers

A deposit request is not automatically a red flag. Most suppliers asking for money upfront are simply covering mobilisation costs: materials, specialist labour, software licences, insurance, or the plain fact that they cannot fund your project from their own cash flow. The problem is that a deposit is also the point where you have the least evidence and the most exposure. The supplier has your money, and you have a promise.

So rather than adopting a blanket no-deposits rule, which will rule out plenty of perfectly good firms, it is worth having a repeatable test. Not a legal audit. Not a procurement marathon. Five checks you can do before the payment run closes.

Check one: What is the deposit actually buying?

Ask for the deposit to be tied to something specific. "Mobilisation" is a word, not a milestone. What you want is a short written note explaining what will have happened by the time the deposit is spent: materials ordered and held, a named team allocated, a site survey completed, a licence purchased, a subcontractor booked.

If the answer is vague, that is useful information. A supplier who cannot describe what the deposit pays for is either disorganised or uncomfortable being specific. Neither is ideal before you have handed over a five-figure sum.

A good sign is when the supplier volunteers evidence. A purchase order for long-lead materials. A copy of the insurance certificate. A named project manager with a start date. None of that guarantees performance, but it shows the deposit has a purpose beyond improving their cash position.

Check two: Do the filed accounts match the confidence in the room?

You do not need to be a credit analyst to spend ten minutes on Companies House. Look at the last two sets of filed accounts. Are they filed on time? Is there a pattern of late filing? Does the company have net assets, or is it propped up by directors' loans? If the supplier is part of a group, check the parent too.

Small suppliers can be perfectly healthy with modest balance sheets. The point is not to disqualify anyone under a certain size. The point is to notice the difference between a firm that is quiet because it is busy and a firm that is quiet because it is struggling. A deposit paid to a company with a thin balance sheet and no visible trading history is a different risk from a deposit paid to a firm with ten years of filed accounts and a sensible cash position.

Also check for county court judgments. They are not automatically fatal, but a cluster of them tells you something about how the business handles its obligations.

Check three: If this goes wrong, how do you get out?

Deposits are easy to pay and awkward to recover. Before you pay, look at the exit terms. What happens if the supplier fails to deliver? Is the deposit refundable, and on what timetable? Does the contract allow you to set the deposit off against later invoices, or is it treated as a separate, non-refundable payment?

A surprising number of contracts are silent on this. Silence favours whoever is holding the money. If the supplier's standard terms say the deposit is non-refundable in all circumstances, that is not a deal-breaker, but it should change how much you are willing to pay upfront.

A sensible deposit clause should say what the deposit is for, when it is earned, and what happens if the project stops before it is earned. If that sounds like too much detail for a small supplier, remember that the conversation itself is a useful test of how they handle commercial questions.

Check four: What protection sits behind the payment?

There are several ways to reduce deposit risk without turning the project into a banking exercise. For larger sums, a staged deposit released against evidence is better than a single upfront payment. For specialist suppliers, a parent company guarantee or a performance bond may be appropriate. For software and licences, check whether the deposit is held by the supplier or passed straight to a third party.

Escrow is worth considering where the deliverable is bespoke and the supplier is small. It is not free, and it is not always proportionate, but it is a legitimate option for the right project.

At the smaller end, the simplest protection is to pay by bank transfer to a verified account, never by cash, and never to an account whose details changed by email at the last minute. Payment diversion fraud is still a live problem, and a new supplier relationship is exactly when people are least likely to question a change of bank details.

Check five: Who signed it off, and can they explain why?

This is the check most organisations skip. A deposit gets approved because someone senior says yes in a corridor, and six months later nobody can remember the reasoning. Write it down. Not a board paper. A short approval note: who requested it, what it covers, what checks were done, what the exit terms are, and who approved it.

That record does two things. It slows down the casual yes that nobody owns. And it gives you something to refer to if the relationship sours and you need to explain why the money was paid in the first place.

The threshold, not the wall

The useful question is not "do we pay deposits?" It is "what would make this deposit acceptable?" For a £2,000 deposit to a long-standing supplier, the checks can be light. For a £60,000 deposit to a new supplier on a tight timeline, they should be more thorough. The threshold moves with the sum, the supplier, and the consequences of failure.

A deposit is a commercial decision, not a moral one. The five checks above are simply a way of making that decision deliberately, before the money leaves the account and the questions get harder.