Customer deposits make the bank balance look stronger than the work ahead

Cash arrives before the costs

A hypothetical contractor receives several customer deposits in one week. The bank balance rises sharply, and the owner considers catching up every older bill. Those deposits also relate to work that still requires labour and materials. Before relying on the apparent surplus, identify the commitments behind each receipt and obtain advice on any contractual or legal restrictions that may apply.

Match each deposit to its project

Record the customer, contract, amount received and work still required. Check whether the payment has already been included elsewhere in the forecast so it is not counted twice. Ask the accountant how it should be recorded in the accounts. A deposit's accounting classification and any restrictions on its use require the relevant circumstances; neither follows from the bank description alone.

Place the remaining costs on the timeline

Business.gov.au recommends tracking cash entering and leaving the business and clearly identifying estimates. Schedule the expected costs of delivering the work alongside any later customer payments. Use current supplier and labour information rather than the original quote alone. The purpose is to see the cash needed to fulfil the commitments associated with money already received.

Source: business.gov.au: Set up a cash flow statement

Test what the balance must cover

In the hypothetical example, a $30,000 deposit relates to work with $24,000 of forecast payments before the next receipt. That leaves $6,000 within this simplified cash sequence, before other costs or changes. It is not a profit calculation or permission to spend the difference. Confirm the complete project position and applicable obligations before deciding how the funds can be used.

Review changes before releasing more spending

If delivery is delayed or costs rise, update the timeline and identify who approved the revised assumptions. Keep customer refund questions separate from the operational estimate and seek advice where contractual rights are unclear. Do not assume that postponing the work removes the obligation or makes the original receipt freely available to solve unrelated shortfalls.

Discuss the combined position honestly

Review all projects together after checking the individual commitments. CRP can help examine the resulting cash pressure with appropriate financial and legal advisers. A bank balance supported by advance receipts can be useful, but the future work behind those receipts matters. Make the spending decision with both the cash received and the obligations still ahead visible.