Difference Between Demand Draft and Cheque

It is suitable for the public like dealing with fewer relations with bank immediate action and the security measures to be performed. We basically cover every bank’s documents at difference between cheque and dd most possible for us to share. In Banker’s cheque, the chances of dishonor are not possible because its mode is prepaid.

Can I cancel or stop a demand draft?

DD’s are generally used when one has to make payment in another city and it can be cleared at any branch of the same bank. The RBI has provided directions to banks on how to deal with corrupt people who authorise bogus demand drafts. The guidelines state that you can issue DDs for over ₹20,000 with account payee crossing. When attempting to deal with an unknown entity, it is always preferable to request a demand draft.

The withdrawing bank becomes the guarantor and assures payment release after the clearing mechanism. Moreover, the person requesting a DD does not need an account with the bank. A cheque is an order by an account holder to their bank to pay a specific sum from their account to the person mentioned in the cheque. It’s a form of non-cash transaction that takes place between two entities. The person issuing the cheque is called the drawer while the person to whom the cheque is issued is called the drawee. Cheques are more common for personal and business transactions, while demand drafts are often used for secure payments, especially when the payee needs guaranteed funds.

For smaller or routine payments, cheques or electronic transfers are often preferred due to their convenience. Banks charge a fee for issuing demand drafts, increasing the overall amount of the draft. This makes it less cost-effective for frequent or small-value transactions. Demand drafts offer a high level of payment security as the bank guarantees the amount. The payee does not need to worry about insufficient funds or cheque bounces.

Can you use both cheques and demand drafts for payments?

A demand draft is a secure payment instrument issued by a bank that guarantees the availability of funds. It involves the bank deducting the draft amount from the purchaser’s account and setting aside the funds. When presented for payment, the funds are transferred to the payee’s account. Demand drafts offer security, wide acceptance, and convenience for both parties. They can be obtained from banks by filling out an application form, providing documentation, and paying an issuance fee. A demand draft is a pre-paid financial instrument in which the bank fully withdraws the required money once the payee presents a DD to pay.

1. At its core, issuance of both cheque and demand drafts involve a payer who issues the cheque or demand draft and a payee who receives the payment.
2. This is the case where substantiation and secure payment delivery are highly important.
3. The money can be easily transferred with security through these instruments because of the pre-payment facility, as there will be no chance of getting the payment dishonored or bounced.
4. 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.
5. The bank may deny the payment if the issuer does not have enough balance in their bank account.

Timing of payment by the payer

Demand drafts are usually obtained by depositing funds with the bank and requesting the issuance of a draft payable to a specific individual or entity. For example, if a payee is not familiar with the payer or if the payment amount is large, a demand draft can provide a level of security that a personal check does not. Additionally, demand drafts are commonly used for international transactions, as they can be used to transfer funds across borders. For example, a business may use a demand draft to pay a supplier for goods or services.

Whenever there’s a big sum of money at stake, the bank issues the demand draft using funds from the user’s account who requested it. A drawer is a person or client that demands the demand draft, whereas the institution that pays the cash is the drawee. Since the bank prepays demand drafts, there’s no risk of bouncing due to insufficient funds, unlike cheques, which depend on the balance in the drawer’s account.

This allows him to release the commodities faster and assume full ownership of these goods until the beneficiary receives them. Every Indian bank offers the demand draft and cheque facility to its customers to ensure hassle-free transactions. This streamlines the whole process and provides a more flexible and simple banking experience.