They do not contain the account holder’s personal details, reducing the risk of misuse. However, it is still important to handle demand drafts with care and ensure they are delivered to the intended recipient. In summary, while both cheques and demand drafts are used for transfers and payments, they differ significantly in several aspects. A cheque comes with the risk of bouncing for lack of funds in the drawer’s account, while difference between cheque and dd a demand draft, paid in advance, is equivalent to cash in hand and thus a safer mode of transaction. The process of obtaining and clearing them is also distinct, with cheques being easier to issue but slower to clear, while demand drafts carry a processing fee and provide quicker clearance.
- So, the next time a big deal comes across, ensure that you ask for the right payment instrument for guaranteed payment with security.
- This may be free transactions based on the number of quantities or free transactions based on the size of the transaction.
- On the other hand, a demand draft is considered a more secure form of payment as it is prepaid.
- This category of demand draft is time specific, which means it will be payable only after a specific period.
- Cheques and demand drafts are distinct payment instruments with their own advantages and disadvantages.
Moreover, many institutions and organizations prefer cheques as a mode of payment as they are less likely to bounce compared to cash payments. A cheque is generally valid for a period of six months from the date of issue. If the payee fails to deposit the cheque within this timeframe, it becomes stale and may not be honored by the bank.
How to make a demand draft?
However, both have notable differences you should understand before choosing an appropriate payment instrument for specific needs. In the following sections, we will explore the differences between a cheque and a demand draft to help determine the right payment method. A demand draft is a financial instrument issued by a bank or financial institution on behalf of a purchaser. It is a prepaid instrument that guarantees the payment to the payee mentioned in the draft.
On the other hand, demand drafts provide security, faster clearance, and assurance of payment, but they may involve costs, limited usage, and non-refundable nature. Cheques are widely accepted as a form of payment, and many businesses and individuals still rely on them for various transactions. However, with the advancement of digital payment methods, the usage of cheques has declined in recent years.
Demand drafts differ from regular normal checks in that they do not require signatures to be cashed. For this purpose, various methods of payment are used, in which cheques and demand drafts are also included. Many organizations use demand drafts to issue refunds to their customers, such as in the case of cancellations or returns. This is because demand drafts are a safe and secure way of making payments and ensuring that the recipient receives the payment promptly.
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Although a check can be hand-delivered, this is not the case with a demand draft. The draft may be drawn regardless of whether an individual holds an account at the bank while a check may be written only by an account holder. A demand draft is issued by a bank while a check is issued by an individual.
While cheques have the advantage of ‘stop-payment’ option, to protect the payer in case of any fraud by the payee, it is demand drafts that are considered a safer mode of payment. This is because they have surety of payment for the payee as well as safety from misuse as they can only be paid to the specified payee and not to any bearer. Infact, a lot of establishments do not accept cheques due to this very reason and insist on demand drafts especially for higher value exchanges. Although digital payments are becoming the norm, cheques and demand drafts still serve as reliable alternatives for those who prefer paper-based transactions. If a draft is lost or stolen, the process to stop payment and request a new draft can be time-consuming and may incur additional costs.
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On the other hand, demand drafts usually involve a fee charged by the bank for issuing the instrument. The fee amount can vary depending on the bank and the transaction value. It is important to consider these costs when deciding between a cheque and a demand draft for a particular payment. When a cheque is deposited into the payee’s bank account, it undergoes a clearance process.
Difference Between Cheque and Demand Draft
Thus, it is not necessary that the payer have an account in the bank to make a request for issuing a demand draft. This article looks at meaning of and differences between two types of negotiable instruments – cheque and demand draft. Cheques are convenient for everyday transactions and do not usually incur fees. Demand drafts are better for high-security payments, especially when guaranteed payment is required, as the bank issues them with no risk of bouncing. The banker’s cheque or otherwise known as pay order is an instrument issued by the bank on the behalf of a customer, containing an order to pay a certain sum to a specified person, within the city.
On the contrary, even account payee cheques do not guarantee that payee will receive the money. A time demand draft has a predetermined pay time in the future and is not payable right away. It is only fully payable once a specified time has passed after the payee got the items. Certain shipping companies may opt to employ a time-demand draft in international commerce. Some international deals, particularly the import-export segment, necessitate the use of these demand drafts. Generally, the drawer’s bank does not approve the quoted payment at least 15 days after the ownership of goods or services has been transferred.
So, the next time a big deal comes across, ensure that you ask for the right payment instrument for guaranteed payment with security. Cheques can only be issued by individuals or businesses that hold specific types of bank accounts, such as Savings, Current, Cash Credit, or Overdraft accounts. This ensures that the drawer (account holder) has a legitimate account with the bank. Demand drafts provide a safe and secure way of making international payments as they are guaranteed by the issuing bank.