Difference Between Demand Draft and Cheque

Demand Draft

A demand draft is a financial instrument used for making payments or transferring funds between two parties. It is a type of cheque that is guaranteed by the issuing bank and is commonly used in situations where the payee requires a more secure form of payment than a personal check. The person who wants to make a payment, known as the payer, requests a demand draft from their bank. The payer provides the bank with the name of the payee and the amount of the payment. The bank then withdraws the funds from the payer's account and creates a demand draft for the payee.

A demand draft is a legal contract between the payer and the payee. The payee can present the demand draft to their bank for payment. The bank will verify the demand draft and release the funds to the payee's account. The payer's bank guarantees the funds and will honour the demand draft when it is presented for payment. Demand drafts are commonly used in situations where a payee requires a more secure form of payment than a personal check.

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. Demand drafts are also commonly used in business transactions. For example, a business may use a demand draft to pay a supplier for goods or services.

Cheque

A cheque is a written order that instructs a bank to pay a specific amount of money from one person or organization's account to another. Cheques are one of the oldest and most common forms of payment in the world, and they continue to be widely used despite the rise of digital payment methods. The history of cheques can be traced back to ancient Rome, where merchants would sign a document called a praescriptiones to guarantee payment to a third party. In medieval Europe, cheques were used by traders to pay for goods and services, and they were often written on pieces of paper called "bills of exchange."

In the modern era, cheques are used for a variety of purposes, including paying bills, making purchases, and transferring money between accounts. To write a cheque, the account holder must fill out the necessary information, including the payee's name, the date, and the amount of money to be paid. The account holder must then sign the cheque and present it to the payee or deposit it into their account. Cheques can be written in any currency and can be drawn on any bank or financial institution. They can also be customized with logos, slogans, and other branding elements, making them a useful marketing tool for businesses.

One of the primary benefits of using a cheque is that it provides a paper trail of the transaction, which can be useful for accounting and record-keeping purposes. Additionally, cheques can be cancelled or stopped if necessary, providing an added layer of security for both the payer and the payee. However, there are also some drawbacks to using cheques. First, cheques can be easily forged or altered, which can lead to fraud or other criminal activity. Second, cheques can take several days to clear, which can cause delays in receiving funds.

Despite these limitations, cheques continue to be a popular form of payment for many individuals and businesses around the world. They offer a reliable and convenient way to transfer funds, and they can be easily customized to meet the needs of different users. In recent years, however, the rise of digital payment methods such as credit cards, debit cards, and mobile payments has threatened to make cheques obsolete. These new payment technologies offer faster, more secure, and more convenient ways to transfer funds, and they are rapidly gaining popularity among consumers and businesses alike.

Difference Between Demand Draft and Cheque

Uses of Demand Draft

Demand drafts are used for various purposes, and their popularity is mainly due to their convenience, security, and reliability. The various uses of demand drafts are:

• Payment of Bills and Fees

Demand drafts are widely used for paying bills and fees. Whether it is utility bills such as electricity, water, or gas, or educational fees, such as college tuition or exam fees, demand drafts are a popular choice.

This is because demand drafts are a safe and secure way of making payments and ensuring that the recipient receives the payment promptly. Moreover, many institutions and organizations prefer demand drafts as a mode of payment as they are less likely to bounce compared to regular cheques.

• International Trade and Transactions

Demand drafts are commonly used in international trade and transactions. International transactions involve a high level of risk due to currency fluctuations, frauds, and other risks associated with cross-border payments.

Demand drafts provide a safe and secure way of making international payments as they are guaranteed by the issuing bank. Moreover, demand drafts are accepted in most countries, making them an ideal choice for international transactions.

• Purchase of High-Value Goods

Demand drafts are also commonly used for the purchase of high-value goods such as real estate, automobiles, and jewellery. When making such purchases, the buyer needs to ensure that the payment is safe and secure.

Demand drafts provide an added level of security as they are issued by the bank and guarantee payment. Moreover, demand drafts are also useful in cases where the buyer and seller are not located in the same city or state.

• Salary and Pension Payments

Demand drafts are also used for salary and pension payments. Many organizations, especially government organizations, use demand drafts to make payments to their employees and pensioners.

This is because demand drafts are a safe and secure way of making payments and ensuring that the recipient receives the payment promptly. Moreover, demand drafts are less likely to bounce compared to regular cheques, ensuring that the employees and pensioners receive their payments on time.

• Refunds and Reimbursements

Demand drafts are also used for refunds and reimbursements. Many organizations use demand drafts to issue refunds to their customers, such as in the case of cancellations or returns. Moreover, demand drafts are also used for reimbursements, such as travel reimbursements or medical reimbursements, as they provide an added level of security and ensure that the recipient receives the payment promptly.

Uses of Cheque

Cheques can be used for various purposes, the different uses of cheques are:

• Payment of Bills and Fees

Cheques are commonly used for paying bills and fees. Whether it is utility bills such as electricity, water, or gas, or educational fees such as college tuition or exam fees, cheques are a popular choice.

This is because cheques provide a safe and secure way of making payments and ensure that the recipient receives the payment promptly. Moreover, many institutions and organizations prefer cheques as a mode of payment as they are less likely to bounce compared to cash payments.

• Salary and Business Payments

Cheques are also used for salary and business payments. Many organizations, especially small businesses, use cheques to make payments to their employees and vendors.

This is because cheques provide a convenient and secure way of making payments and ensure that the recipient receives the payment promptly. Moreover, cheques also provide an added level of security as they leave a paper trail, making it easier to keep track of financial transactions.

Purchases

• Donations

Cheques are also used for making donations to charitable organizations. Many charitable organizations prefer cheques as a mode of payment as they provide an added level of security and leave a paper trail. Moreover, cheques also allow individuals to keep a record of their donations, which can be used for tax purposes.

• Loans and Repayments

Cheques are also used for making loan payments and repayments. Many financial institutions use cheques as a mode of repayment for loans, especially in cases where the loan amount is high.

This is because cheques provide a convenient and secure way of making payments and ensure that the repayment is made on time. Moreover, cheques also provide an added level of security as they leave a paper trail, making it easier to keep track of loan repayments.