[Question] The Consumer Protection Act in regards to deposits for services rendered .

[KevinW]

Hi all ,

I am a web designer / developer . My concern is that when I meet a new client we discuss the website they are looking for and we discuss pricing . I then draw up a contract and ask for a 50% deposit before I start doing the work . I then keep the client updated on the work I am doing and give them access to the website as I build it . I am always worried that once I have completed the site or get halfway they turn around and say they dont want to use me anymore for whatever reason ( even after having been in agreement with the work up to that point ) and then demand the deposit back . Can they do that , If I have put so many hours into developing the website to that point , Do i then just have to hand over the deposit and lose the time I have put in . What does the consumer protection act have to say about this sort of situation ?

[HR Solutions]

Difficult one this one, but personally I would not pay 50% deposit to a web designer, due to bad experiences. I will tho pay them the 50% deposit once they have set up my site before it goes live, so that I can see if we are both working on the same page.

[BusFact]

I don't think you have a concern. The deposit you are referring to is a prepayment or down payment. Its not a deposit you make to a bank or against an item you hire. If you are worried, change the wording to say "50% payment upfront". That will remove any ambiguity. Mention too that it is not refundable, if that also concerns you.

[HR Solutions]

Mention too that it is not refundable

So if I pay a person to do work and give them a "non refundable" deposit, I will not get it back if the work they do is terrible ! I would NEVER do that - what protection does the customer now have ?? That goes directly against the Consumer Protection Act.

[KevinW]

Difficult one this one, but personally I would not pay 50% deposit to a web designer, due to bad experiences. I will tho pay them the 50% deposit once they have set up my site before it goes live, so that I can see if we are both working on the same page.

Thank you for the reply , I have also had bad experiences with clients before we started asking for deposits . I would do a whole lot of work and get most of the site done only yo be told they do not have the funding available and would contact us when they so .

I have a portfolio of work done and clients always play an active role in the development of the site from day one . As I said we always post live updates for them to check and any changes required are done in the development phase .

I have not had this problem before where someone has asked for a deposit back , But it does concern me .

[KevinW]

I don't think you have a concern. The deposit you are referring to is a prepayment or down payment. Its not a deposit you make to a bank or against an item you hire. If you are worried, change the wording to say "50% payment upfront". That will remove any ambiguity. Mention too that it is not refundable, if that also concerns you.

Thank you for the advice .

[KevinW]

So if I pay a person to do work and give them a "non refundable" deposit, I will not get it back if the work they do is terrible ! I would NEVER do that - what protection does the customer now have ?? That goes directly against the Consumer Protection Act.

I agree , There should be protection for the customer but in the same way should there not be some sort of protection for the supplier also . I do not want to do a major part of the site and then be told they cannot afford it anymore or they do not want a website anymore . I think my work is good and I take pride in what I do . If a client is unhappy with any aspect of the site we make the changes until they are happy.

[GertH]

KevinW, from a web designer / developer position, make sure your contract is perfect and make sure they sign it BEFORE you do ANYTHING.

From a client position, do your research. Make sure the web design company can do what you want them to do and make sure you explain everything BEFORE the project starts. Don't inform them of an entire new page you want designed on your website when the project is already half way done. This will ALWAYS result in extra fees, well at least if you deal with a proper digital agency.

People will always want their business to get the better deal and if they have to moan and complain to get an extra widget developed for their website, they will, they will often threaten you and attempt to get their money back so they can try their luck with the next company, why, because they don't understand the process of web design, they don't understand that every little thing takes time and if the initial project spec didn't indicate a task, then it's not included in the initial price. Be thorough with clients, don't be scared to tell them something that might scare them off, tell them exactly this is what they are getting and if they want ANYTHING more then they have to pay for it and if any client doesn't want to pay a 50% deposit, put down the phone, walk out of the meeting, because they will waste your time. Imagine going to an architect, telling him you want plans drafted for a new building and you tell him you won't pay a deposit... He'll laugh at you. Make sure they understand that it's a service and you are spending time and resources to create the site, you're not selling them a product that they can return.

[GertH]

Another thing KevinW, way back when I started a digital agency, we had an incident with one of our first few clients. We drove over 100km's 4 to 5 times to go meet with him (he was aware of this but insisted we come). His project wasn't even worth more than R4k. We completed the website after way too many itterations, back and forth for over 3 months. As we just started out, we had no legal contracts that we made our clients sign. We asked for a 30% deposit before we started, he paid it. We finished the project on our development server so he can view the website there before we made it live on his domain. He signed the project off and told us to go live. We asked for the remainder of the payment and he paid. We went live. After 3 months of the website being live, he randomly whatsapps me and says this is not what he wants and he wants his money back and the website taken down. I laughed, my partner laughed, we never spoke to him again.

[BusFact]

So if I pay a person to do work and give them a "non refundable" deposit, I will not get it back if the work they do is terrible ! I would NEVER do that - what protection does the customer now have ?? That goes directly against the Consumer Protection Act.

Its quite simply not possible to arrange payment to happen exactly as the work is performed and as required. Its too complex and too open to personal opinions. So every deal becomes a negotiated trade off. In this case "non refundable" means that the customer is committing to the job and won't change their mind. If the work is out of spec, then that is something totally different. In any event, if you pay anything upfront to a dodgy and useless designer you will not see a cent back regardless of how the contract is worded.

Its up to the customer to research the vendor so that "terrible" work is unlikely.

I sell products not services. For new, unknown customers I expect payment before I release the goods. Is that not effectively a 100% "deposit". If the product fails I will refund them because I have a reputation to uphold in the industry. If they change their minds, they can return standard items. If they change their minds on an item that has been branded for them and can't be resold to someone else then I will not take back the product nor refund them.

I am not sure how recruitment works, but how do you handle a new client who decides to no longer employ a successful candidate after you have spent hours, perhaps weeks meeting possible candidates and researching their backgrounds? Its a very specialised job so you could not pull the info off your existing database.

[HR Solutions]

I am not sure how recruitment works, but how do you handle a new client who decides to no longer employ a successful candidate after you have spent hours, perhaps weeks meeting possible candidates and researching their backgrounds? Its a very specialised job so you could not pull the info off your existing database.

Yes deposits is a negotiated entity. In recruitment there is no deposit. It is not done in our industry. We have to vet the client and make the call whether they are "good clients" . We work on a 3 out of 4 rule i.e. if T&C's are signed and a number of other criteria are met we then do the work, which might take up to two weeks. Yes we stand the risk of a client not paying for a candidate once sourced - we have to deal with that when it happens - we have had that happen only twice in 13 years.

In the past companies used to ask for deposits when they have to lay out their own capital to either buy the product and / or manufacture the product, which is totally understandable , but unfortunately a lot of people will not give a deposit if there is no manufacturing to be done i.e. in this case it is only time. It is a difficult thing because deposits are also a signal of a new company starting out who does not have the cash flow to operate and then operates on clients deposits to do the work.

[Justloadit]

It is a difficult thing because deposits are also a signal of a new company starting out who does not have the cash flow to operate and then operates on clients deposits to do the work.

Not necessarily.
Many a client in the past sent an order, and then ducked and dived when it was complete. It could not be sold to anyone else, as it was tailor made, or had the customer's branding.

Now a days I do not really care who the client is, I want a deposit to show commitment. on rare occasions I may not request a deposit, if the order is small, and the organization who has placed their order, has a order placing process, in which a number of departments must authorise the order. Even so, if the risk is high and the goods manufactured are branded, then I will insist on the deposit.

After all an order is a piece of paper, and yes it is a legal document, but at what cost to litigate?
It is cheaper to prevent the problem, than trying to cure it

[Greig Whitton]

I am always worried that once I have completed the site or get halfway they turn around and say they dont want to use me anymore for whatever reason ( even after having been in agreement with the work up to that point ) and then demand the deposit back . Can they do that , If I have put so many hours into developing the website to that point , Do i then just have to hand over the deposit and lose the time I have put in . What does the consumer protection act have to say about this sort of situation ?

There's some good (and not so good) advice in this thread, but here is the answer to OP's primary question:

Section 5(2)(b) of the CPA clearly states that the Act does not apply to transactions "in terms of which the consumer is a juristic person whose asset value or annual turnover, at the time of the transaction, equals or exceeds the threshold value determined by the Minister in terms of Section 6". The threshold value referred to here is R2 million (as published by the Department of Trade and Industry via Government Gazette No 34181).

So if your clients are juristic persons (e.g. companies, close corporations) with an annual turnover (or asset value) exceeding R2 million, then they can't use the CPA to insist on a refund (which is not to say that they can't still demand a refund or even take legal action to secure one, just that they can't use the CPA to do so).

If your clients aren't juristic persons (e.g. if you service the general public), or if they are but they fall below the threshold, then they can use the CPA to insist on a refund. This would fall under Section 54 (a consumer's right to quality service). In terms of this section, consumers may demand a refund if they believe that their supplier has failed to meet quality standards. However:

(1) If you and your clients can't agree on whether your service is to standard or not, then it is up to them to approach the National Consumer Commission (or other relevant juristic entity). In other words, just because they claim poor service and demand a refund doesn't mean that you are legally obliged to give it to them. Of course, you would have to weigh up the potential non-legal implications (e.g. an irate customer badmouthing you on social media). But from a strictly legal perspective, you're within your rights to refuse a refund. That said, the onus will be on you to prove that your service was of sufficient quality if your customer actually does pursue legal action.

(2) Even if you do agree to a refund, Section 54(2)(b) clearly states that it must be "a reasonable portion of the price paid for the services performed and goods supplied, having regard to the extent of the failure." So you're not obligated to refund in full. Again, your customer might insist on a full refund, but you're not legally obliged to give it (although, again, the onus will be on you to prove that a partial refund was reasonable if it comes down to that).

[HR Solutions]

Mmmm that's all very well if the system worked and didn't take so long ! At the end of the day it's going to be you and the customer to decide if you are going to take a deposit or not and for what it will be for.


To run a business in this country at the moment with all the legislation and red tape and procedures is a nightmare.

[BusFact]

I have to agree with you in that regard HR. Not so much on the CPA which I think has its merits, but bureaucracy in general is a pet dislike of mine. Running a business should me more about making a good product or service, and not so much about being a parent to employees, deciphering legislation requirements and dealing with bureaucratic inefficiency.