Refund of Deposit

[MrHard]

We recently had a vendor who ordered some custom items. They paid 50% deposit, the remaining balance was to be paid before the goods were shipped out.

They are now asking to cancel their order after they received the specifications on the units with the measurements and materials involved. It not being what they wanted is not an issue since we are flexible. These are the final manufacturing sheets that are used to build the items. We had informed them that the sheets needed to be confirmed before production began, so the items have not been built yet.

I think they used these sheets to either build the items themselves, or shopped them out to another manufacturer, possibly internationally, at a better price then we quoted them.

We have not had problems with people ever wanting to cancel before after a deposit has been paid so there was no clause agreed to about what to do in this situation. What, if any, portion of the deposit do you think should be returned to them?

[smartwork]

...there was no clause agreed to about what to do in this situation

Not sure what kind of money we're talking about, but the above fact in combination with nothing having been built yet, it's my opinion that they would win 100% of their deposit back if they were to fight it. Had something been created, in production, or there was an agreement about deposits relating to the furnishing of those documents, then you might stand a better chance. It's always unfortunate to lose a sale, but it's tough to hang on to a "virtual sale" when nothing has actually been produced or specified services rendered. It can be done in some cases, but it can get messy too.

When you create your policy for the future, perhaps line-item a fee for supplying those documents so that the amount is not under the label of deposit, but rather directly applicable to the supplying of docs for review, so that if something like this happens again, the docs were supplied and fee paid = no refund.

Do you have anything at all that relates to your requiring 50% deposit and why it's required? If you have anything that relates to that, you may be able to twist that into a no-refund basis.

[MrHard]

They were told initially that we required the deposit before we could begin on the specifications. Due to the delays involved we decided to begin the blueprints early on their word that the financials were in process and just delayed. We also sent the docs prior to receiving payment. When in negotiations we did request the deposit needed to be received before the items were to be built, since they already had the specs a that point.

This project took months to negotiate and decide just exactly how they wanted the items to be built, going back and forth on details and altering the specification each time, thus the reluctance to just simply refund no questions asked.

[dpd1]

I would for sure cover my costs for what was done already, and probably throw in some extra for my time. How much you try to stick them depends on how good a customer they are I guess, which only you know. All they can do is say no. If you legitimately spent money and time and make up some paperwork, I don't see how they could argue with that much.

[smartwork]

All they can do is say no.

That's exactly right. Just have a plan on where to go from there. If you're going to ask to keep a percentage other than 50%, be prepared to defend that because that figure won't have been presented to them in any fashion previously... whereas the figure of 50% was presented to them during the deposit arrangement. Just saying that if "new" figures are presented to them, it may be perceived that you're making things up on the fly.

Is this a regular customer or new?

[topr8]

not exactly your example, but in a retail environment selling relatively unique items ... customers would come in and put a deposit on items and then later come back saying they no longer wanted them and wanted their money back...

the cost to us was a potential lost sale of a unique item to another customer while the item was 'reserved'

so we changed it from a 'deposit' to reserve an item, to a 'reservation' fee, this reservation fee would be deducted from the cost of the item when the customer returned to complete the purchase.

on the receipt we gave for the reservation fee, it clearly stated, that the payment was a fee to reserve an item until a certain date, after which time the item would be available for general sale again, but that on no account would the reservation fee be refunded.

after we started doing this we had virtually no problems with customers wanting refunds on deposits.

in your situation i wouldn't give any refund, or at least hold out for that, you did all the preparitory work and you had an agreement with them to produce the items, why give a refund, you also allocated factory time to produce their items, it's irrelevant that they pulled out, these are all costs you incurred.

[MrHard]

I suppose I could list the hourly salary of everyone who was involved in the process and match a reasonable amount of time for each task, documenting each email and spec sheet made as a written record and submitting this to them as proof of not a full refund. This would make the refund a more accurate figure that does not reflect actual construction time, if indeed the 50% deposit included that in the first place.

After the calculation I can determine how much of the deposit they should get back, or if they actually owe more then the deposit. I also feel that the time it takes to do all this research is also deductible from the deposit amount.

Just as a side note, the deal will go through after all. The process was so drawn out that a new entity came in who had not communicated with other parties involved first.

[smartwork]

Just as a side note, the deal will go through after all.

Absolutely great to hear. Keep plugging away on refining that new policy though.