What is a deposit?
A deposit is a sum of money that is held in an account. It may be secured in a bank for safekeeping or to secure goods for renting or purchase. Many different kinds of business transactions involve the use of a deposit. During daily operations, your business may pay regular deposits and receive deposits from customers.
Sometimes, a deposit is refundable security returned to the payer when certain conditions are met. Other deposits are non-refundable as a condition of an agreement between two parties or because the depositor has not fulfilled their obligations.
Here, we’ll explore the definitions of a deposit that business owners are likely to encounter with illustrative examples.
Examples of deposits
Bank account deposits
One of the most common forms of a deposit is when businesses physically deposit cash earnings into their bank accounts. While there are more payment methods than ever, many companies still handle cash and need to deposit it securely into their business bank accounts for safekeeping. Although it may protect cash earnings by holding them in a safe, businesses generally do not keep the contents of their safe on-site for long periods. In this context, funds deposited are still owned by the company and can be withdrawn and transferred as the company sees fit.
There are two types of deposit accounts available:
Demand deposit: Here, account holders may access funds deposited into their account any time they wish
Time deposit: Time deposits require funds to be inaccessible for a set period. While this may not be conducive to cash flow, these accounts offer a higher interest yield than standard savings accounts)
Private landlords and companies renting their business premises will likely encounter tenancy deposits. As a condition of the tenancy, the tenant is usually expected to pay a fixed sum upfront to secure the property and mitigate risk for the landlord. This deposit is typically refundable if the tenant adheres to their obligations under the tenancy agreement. These types of deposits are protected under the government-approved tenancy deposit scheme.
Businesses will often accept deposits from customers to secure goods for sale. High-value items like vehicles and machinery may require a percentage of the final purchase price to be paid upfront as a down payment. At the same time, the remaining costs are broken into instalments.
When should I take a customer deposit?
Many businesses accept customer deposits to mitigate their risk in a transaction. Common examples include when selling a high-value item, when the customer has poor credit, when a customer requests you hold goods with no delivery arrangements, or when a product is personalised or customised.