Thank you everyone for this information. This is helping me untangle what I do. Up until now (I hate to admit this) I kinda had a different arrangement with every client. sigh.
I ask for one month's deposit for retainer clients in addition to the pre-paid retainer payment. I hold the deposits until the end of the contract term and apply that to the last month. I've tried using the deposit toward ongoing work but that becomes 'nightmare-ish accounting' for me. I have a 30-day notification of the termination of a contract so this has worked out well and then I just apply that deposit to the last month's work.
For hourly clients, which I have not had lately, I required a minimum of two hours per week so the hourly deposit is 8 hours minimum. Again, I require 30 day's notice so the deposit is applied to that last month.
I LOVE your policy. I'm writing it into my Welcome packet now. It's easy to understand and implement. Thank you very much.