One of the most enjoyable parts of bladesmithing for me is the "old world" aspect of it. As corny as this may sound but I really enjoy doing business on the principle "a man's word is his bond".
+1
The custom knife world has boosted my faith in humanity.
All that aside, I have a bit of a sliding scale on this topic.
I've had people who just flat out wanted a custom knife at a reasonable price and couldn't, for whatever reason, work on a payment in full at a set stage. So in those cases I have taken partial payments over a period of months. It's a case then of working with someone to get a knife in their hands.
I have sometimes ended up having to ask for deposits due to needing to make a steel order or a handle material order, and that's as much to do with my wife being in nursing school as anything. It's not something I do often, and something I really prefer to avoid- but an extra $100 order for handle materials at the wrong time can be a cast iron bitch at this stage in my family's life.
Generally, once I have a heat treated blade that I know is going to work and have the rough handle work done and am ready for glue up, I'll start talking about payment. I'm considering moving this back to when the sheath is almost done, but somewhere in this stage I know I've got a knife I can deliver and it can sometimes take a while for a customer to either get a check off or put funds in appropriate places to pay.
I don't see a problem with deposits of under 50% if the turnaround is short (my shop list has grown enough that that's not always workable)- or when work starts on the blade. That comes down, often, to a personal relationship between the maker and the customer.
Asking for a full payment up front, for my price range and materials cost of knives... wouldn't do it. Unless it was something with seriously oddball special materials that would require my full attention for a few weeks, and even then, I'd just want materials costs for a deposit.