Difference Between Demand Draft and Cheque

Demand Draft can be defined as a method used by people to make transfer payments from one bank to another. In other words it is a written order for making payments and hence it does not require a signature in order to be cashed (which distinguishes it from cheque which requires the signature in order to be cashed). Also in case of demand draft bank take advance or directly debit the account and hence issuer of demand draft need to have enough balance in the account which is not the case with the cheque ,it can be issued even if issuer don’t have enough balance in the account. Demand drafts are frequently used by customers to purchase items over the phone, from telemarketers. The person making payments is called drawee and the recipient is called payee and the bank providing the service is called drawer. Demand draft can be of 2 types –

  1. Sight Draft – In this type of draft money transfer can be done only when proper documents are produced on sight.
  2. Time Draft – In this type of draft money can be transferred only after a specific period of time.

However, demand draft are open to fraud because of the lack of a signature required to authorize the transfer, so the only information required to make a demand draft is a bank account number and a bank routing number which can be easily found on a standard cheque.

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2 comments

  1. M.J. SUBRAMANYAM

    Normally in India, a demand draft is issed as “On Demand Pay to …” Hence it is paid when a draft is presented to the banker. Banks in India do not normally issue time demand draft- that money is payable after a period of time.

    M.J. SUBRAMANYAM, BANGALORE

  2. The following are the main differences between a cheque and a demand draft:
    1. A cheque is issued by an individual, whereas a demand draft is issued by a bank.
    2. A cheque is drawn by an account holder of a bank, whereas a draft is drawn by one branch of a bank on another branch of the same bank.
    3. In a cheque, the drawer and the drawee are different persons. But in a draft both the drawer and the drawee are the same bank.
    4. A Cheque can be dishonored for want of sufficient balance in the account. Whereas a draft cannot be dishonoured. Hence there is certainty of the payment in the case of a demand draft.
    5. Payment of a cheque can be stopped by the drawer of the cheque, whereas, the payment of a draft cannot be stopped.
    6. A cheque is defined in the Negotiable Instrument Act, 1881, whereas a demand draft has not be precisely defined in the NI Act.
    7. A cheque can be made payable either to a bearer or order. But a demand draft is always payable to order of a certain person.

    M.J. SUBRAMANYAM, XCHANGING, BANGALORE

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