I take custom orders and have done so for many years now. I require at least 50% deposit before I even start the work to cover at least part of the costs.
Depending on the item, I'll request additional payments as the work is done. Again, this will depend on the complexity of the item.
I do NOT allow any returns on custom orders.
Since most of my custom pieces are wearables, I take the time to work with the buyer in selecting the right yarn for the project. This can (and most often does) involve me sending out swatches of various yarns to the buyer so that they can get the 'touch and feel' of various yarns.
Even with custom orders with a deposit, there are still people who don't complete the purchase.
This particular piece
http://www.etsy.com/listing/32060907/crocheted-womans-heirloom-fishermanwas a custom order (outside of Etsy) where the buyer gave me 75% down and, selected the patterns and once it was finished, never replied to my phone calls or my emails.