How to Keep that Nonrefundable Deposit if your Client Cancels/ Postpones
/No one ever wants to think that their Client’s wedding or event won’t happen. But the reality is that engagements are broken off and events are cancelled due to weather, planning issues, slow ticket sales, or other considerations.
You, however, have held that spot in your schedule. You’ve started preparing for the event, and have put in some legwork. Depending on the date, you may have turned down other work to ensure your availability for that event (10/10/20, anyone?!). This is why you have that nonrefundable deposit clause!
But in order to safeguard that nonrefundable deposit (I also like to use the word Retainer, simply because of the you’ve got to detail the exact formula for the client based on several situations. Let’s talk through them.
PRE-Cancellation/ Postponement: The SETUP of “Liquidated Damages”
But believe it or not, the judicial system wants us to be able to enter and exit contracts freely—- so long as no one gets “damaged” in the process. This means that you 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.
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.”
Typically, the 50/50 breakdown isn’t a great way to structure payment. It’s better to show payments over time as they reflect the amount of work you’re doing. For example:
· Nonrefundable Retainer: Amount of $[NONREFUNDABLE RETAINER AMOUNT] due on signing to secure the Services
· Payment 1: Amount of $[AMOUNT] due on [ DATE]
· Payment 2: Amount of $[AMOUNT] due on [ DATE]
· Payment 3: Amount of $[AMOUNT] due on [ DATE]
I know that multiple payments is a pain in the booty. I know that you want to do a 50/50 breakdown. But please, do small payments over time. This will HELP YOU if the client cancels the wedding-- you’ll be able to keep more money!
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— normally 1/3 or 1/4 to start is a solid choice, with more payments due the closer you get to the event— you will be able to prove it’s reasonable and appropriate in a worst-case-scenario (aka court).
So now that we’ve set things up properly, let’s look at three scenarios:
1. What happens if the entire event is cancelled?
You get the call no event pro wants to receive: the event is cancelled. That’s a major bummer for everyone involved.
But what happens to you? In your contract, you need to detail exactly what you get paid for if that event doesn’t happen. Obviously, we want to keep that nonrefundable retainer, (remember: Liquidated Damages!) But what about any expenses you’ve already incurred? Travel you may have booked? Put it in the contract that the client still has to pay for those expenses if they terminate, especially if those expenses are nonrefundable for you.
This all needs to be specified in your contract, because it is NOT a “given.” Make sure you’ve put all of this in writing, or else you’re stuck (i) stuck paying for your own costs/ expenses, (ii) arguing over the nonrefundable retainer, (iii) possibly going to court (this has happened— especially after COVID).
2. What happens if the event is postponed?
Ok, this is simple, right? You simply provide them a credit and do the event at a later date. Right?
Consider what happens if you already have a different client scheduled that date. Or if that’s the date of your family trip to Disney World. Maybe you’ve MOVED! Or maybe it’s really, REALLY close to you/ your spouse’s due date.
What happens to that retainer?
How long do they have to rebook?
Do they need to pay another retainer to hold the second date?
How will their other fees (not the retainer) be applied to their balance?
And just how far out of your way do you need to go to accommodate that couple’s date change? (Are you required to help them find a replacement?)
You can specify this all up front in your contract! And you really should— because the last thing you want is to have to pay someone back for an event that THEY changed! Make sure you’re working through every possible scenario and plug the “holes” in your contract through which a particularly crafty Client could wiggle-out.
3. What happens if they cancel because they want a different (or less expensive) vendor?
Let’s just call a spade a spade it: this is shadyyyyy behavior!
OK, now that THAT’s out of my system: If you’ve booked the spot on your calendar and turned away other couples, it’s NOT cool for a client to cancel your contract just to go with a cheaper vendor. And this is when that non-refundable deposit/ retainer is going to help compensate you for this loss of revenue.
Is it a perfect fix? No, obviously, because you’d want to be able recoup the entire amount. But this is one reason why it is important to structure the liquidated damages clause to show that the closer the client gets to the event, the more money they will owe as liquidated damages: for example—
Nonrefundable retainer: 30% of total fee/ $X as liquidated damages
90 Days from the event: 50% of the total fee/ as $X liquidated damages
30 Days from the event: 75% of the total fee/ $X as liquidated damages
Less than 30 days from the event: total fee due in full as liquidated damages
This way, your Client can’t decide “hey, this is too expensive, I’m going to use my cousin’s friend to shoot this wedding!” two weeks before the event, which leaves you high and dry. It can also come in handy if the event is rescheduled the week before the wedding— and gives you the opportunity to recoup potential lost revenue. Structuring this way makes your nonrefundable fees look more like liquidated damages and less like a penalty, which will help you in court in a worst-case scenario.
4. But You Might Need to Mitigate
Note that in some states, before you can claim liquidated damages, you are required to “mitigate” the loss and try to find someone to fill their spot in your calendar. Texas is one such state. Others have rules as to the amount of liquidated damages that are considered acceptable: for example, New York considers damages for a cancellation that equal the entire value of the contract a penalty. Make sure you’ve looked into what is acceptable in YOUR state before writing your liquidated damages clauses.
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No one likes to think about the ‘end” of a relationship. But think of these Cancellation and Postponement sections as your client “pre-nup,” You have to think through all of the worst-case scenarios now to prevent emotional, crazy behavior when issues come up, because having this blueprint (i) explains the exact process and defines all expectations, and (ii) protects BOTH of you!
