Deposit or advance payment: differences and reimbursement terms
Despite their similarities, deposits are not the same thing.
When you sign an order form or a contract, you will probably be asked to pay a sum to seal your commitment or block a reservation. But you should be aware that, for a payment of the same amount, depending on whether it's a deposit or a down-payment, the resulting effects are different.
But what's the difference between a deposit and a down payment? We take a look at the definition of each term, the differences between them, and answer any questions you may have in our FAQ. We're off!
Deposits: definition
A deposit is a sum paid in advance to purchase goods or pay for a future service, generally 10% of the total amount (but may be higher).
The payment of this sum does not legally bind the buyer, who can retrace his or her steps. However, if the buyer wishes to cancel the purchase, the deposit is forfeited, unless otherwise stipulated in the contract.
On the other hand, deposits are binding on the seller. If the seller fails to provide the service or goods agreed upon, he must reimburse the buyer twice the amount of the deposit paid.
💡 Good to know: in the case of distance or credit sales, the consumer is protected by a 14-day withdrawal period. If he withdraws during this period, the deposit must be reimbursed. The terms of the contract may provide for a longer period.
Down payment: definition
A down payment is also a sum paid in advance to purchase a good or pay for a future service. It corresponds to an initial payment that is deducted from the total amount due, generally equivalent to 10% of the total sum.
Legally, a deposit is binding on both parties. In the event of retraction, and unless an amicable agreement has been reached :
- the seller is liable for damages,
- the buyer must pay the full price.
As with deposits, the buyer may benefit from a withdrawal period to have the sum advanced reimbursed, depending on the situations set out above.
💡 Generally, the deposit is the subject of a dedicated deposit invoice, providing official proof of its payment. Its amount will then be deducted from the final invoice.
To manage down payments automatically and keep an eye on deadlines, don't hesitate to install an invoicing software package:
Down payment or deposit: what's the difference?
The main difference between a deposit and a down-payment is that a down-payment is legally binding on both parties, whereas a down-payment is only binding on the seller. This has different financial and legal repercussions if either party cancels the contract.
➡️ For example, for a purchase of €3,500, if the buyer pays :
- a deposit of €350
- and finally renounces the purchase, he will only lose his €350 ;
- and the seller cancels the sale, he must pay €700 to his customer.
- a deposit of €350
- and he finally renounces the purchase, the seller can ask him to pay the balance, i.e. €3,150;
- and the seller cancels the sale, he must reimburse the deposit paid to the customer, as well as additional damages.
FAQ: refunding deposits
Are deposits cashed in?
Yes, deposits are generally cashed, as they are what validate the purchase or reservation. They should be distinguished from a guarantee cheque, which should only be cashed in the event of a problem.
Are deposits refundable?
If you withdraw from your purchase, the seller is not obliged to refund your deposit, unless you do so within the legal withdrawal period.
However, you can always try to open a dialogue and persuade the seller to refund all or part of the deposit, or to give you a credit note. However, the seller is under no obligation to comply with your request.
On the other hand, if the seller does not honor his part of the contract, he is obliged to pay double the amount of the deposit. We'll explain how to proceed in the next section.
How do I get my deposit refunded?
If the seller doesn't honor his part of the agreement, he must refund double your deposit. If, after contacting him informally, he does not comply, send him a formal notice to pay by letter with acknowledgement of receipt.
If you don't hear from him after sending a reminder , you can take your case to court.
💡Good to know:
- if the amount in dispute does not exceed 10,000 euros, you can take your case to the district court without a lawyer;
- if the amount in dispute exceeds 10,000 euros, you must take your case to the tribunal de grande instance, accompanied by a lawyer.
What happens if delivery of the order is delayed?
If, three months after payment of the deposit, you still have not received your order, you will be charged interest until delivery is honored by the seller.
At the end of the 3-month period, you can give the seller formal notice to pay you, indicating a new delivery date. If this is still not honored, you have the right to request cancellation of the contract and reimbursement of the deposit.
The seller then has 14 days in which to do so, failing which he will be subject to surcharges ranging from 10% to 50% in excess of 60 days' delay.
What happens to the deposit if the buyer cancels?
If your customer decides to cancel, what happens to the deposit? There are two possible scenarios:
- if the customer withdraws within the legal deadline, you must reimburse the deposit;
- If the customer withdraws after the deadline, you can keep the deposit and claim the remainder.
Can I get my deposit back?
Yes, but only if the sale is subject to a cooling-off period and you withdraw within this period.
Otherwise, you can't get your deposit back, and the merchant can keep it. You will also have to pay any outstanding balance.
Deposit or advance for a seasonal rental?
If conditions allow it, prefer to pay a deposit for greater flexibility and peace of mind.
Is it possible to pay a deposit between individuals?
Yes, it's quite possible, and quite common, especially for car sales between private individuals involving relatively high sums.
If nothing is stipulated, the payment made corresponds to a deposit, as stipulated in article L214-1 of the French Consumer Code. On the other hand, if a promise to sell or an order form mentions the term "deposit" in relation to the sum paid, then the buyer undertakes to go through with the sale, and therefore to pay the full amount.
Article translated from French