Should I use "Nonrefundable Deposit" or "Retainer"?

One of the questions I get asked ALL the time:

“Should I use “Nonrefundable Deposit” or “Nonrefundable Retainer” in my contract?!”

Here’s the skinny on what to call it, and a Jedi-Mind-Trick that I think is worth considering:

No one ever wants to think that a Client’s wedding or event won’t happen. But in reality, it happens all the time. Engagements are broken off, weddings get postponed, and events are cancelled due to weather, planning issues, slow ticket sales, CORONAVIRUS (ugh) or other issues.

And we DO FEEL BAD FOR THOSE CLIENTS. But….You are a business. You’ve got expenses. You have held that spot in your schedule. You’ve put in some legwork. Depending on the date, you may have turned down other work to ensure your availability. And for this reason, we have that clause specifying the nonrefundable payment!

But believe it or not, the judicial system wants us to be able to enter and exit contracts freely, without penalty—- so long as no one gets “damaged” in the process. And that’s why it can be hard to keep those nonrefundable deposits/ retainers.

This means that we can’t penalize someone for terminating a contract, but you can be compensated for the toll it takes on you and your business, aka the “damages.” Here, as the vendor who refused other clients, you can show your “damage”— but only if you write the contract section correctly.

SO THIS IS THE REAL DEAL: The name doesn’t matter so much as setting it UP correctly (*with a caveat I discuss in the video above)

That’s why we draft contracts to be ZIPPED UP and address “liquidated damages” for contract cancellation. THIS IS IMPORTANT.

Liquidated damages are the closest thing to contractual “magic words” we’ve got, folks. By specifying that a particular figure/ fee is liquidated damages and not a penalty for contract cancellation, you are telling the client (and the courts) that '“Hey, this here is what it will cost me if you terminate this contract— so instead of fighting about it, you agree upfront to pay me $X if you cancel.”

Liquidated damages have some state-by-state tricks, so make sure you’ve consulted a lawyer in your locality on the best way to draft them. However, if you’re able to back up the figure you’ve chosen— many times, 1/4—1/3 is a solid choice— you will be able to prove it’s reasonable and appropriate in a worst-case-scenario (aka court).

BUT— watch the quick video above to see why I tend to use the word “Nonrefundable Retainer”!