What is a Demand Draft?
Demand Drafts, commonly referred to as DDs, are a class of pre-paid negotiable instruments in which the drawee bank typically acts as a guarantee to make full payment when the instrument is submitted. Demand drafts are special in that because the payment is given in advance, they cannot be dishonoured. Demand Drafts are essentially used to send money to anyone who is located outside of a city.
Any branch of the same bank will clear demand drafts. Demand drafts are created and signed by bank employees, thus there is absolutely no danger of default. Even having a bank account in the specific branch where a demand draft is being issued is not required.
Meaning of Pay Order
A pay order is a financial instrument that the bank issues on behalf of the client with instructions to pay a certain sum to a specific person in the same city. Payment orders are not negotiable, and the instrument expressly states as such. Pay orders are also pre-paid instruments since there is no possibility of dishonouring them because the money has already been paid. A pay order is valid for three months from the day it was issued. Banker’s cheques are another name for pay orders.
A pay order is always payable by the issuing bank, and it may only be used for payments within the same city. If the other party is in a different city, a pay order that has already been made cannot be cancelled. The bank often acknowledges these directives, ensuring that the payment will be fulfilled.
Pay Order and Demand Draft Difference
Demand drafts and pay orders are both essentially necessary or utilised for the same reason, yet they nevertheless differ from one another. The following is a list of their significant differences:
Demand drafts are a kind of payment that can be cleared in any branch of the issuing bank, whereas pay orders, commonly known as banker’s cheques, must be cleared at the branch where they were issued.
Demand drafts are a sort of negotiable document, whereas pay orders are pre-printed as being non-negotiable. A negotiable instrument is essentially a sort of paper that ensures the payment of a specific sum of money from one party to another.
It is a transferable, signed instrument that guarantees payment of the agreed-upon sum upon demand at any given moment.
Demand drafts can be cleared at any branch of the same bank, whereas pay orders can be cleared at any branch of the same bank in the same city. Demand drafts can be used to pay someone in another state as well, but if someone has to pay someone locally, they should use a pay order.
Essentially, both of these financial instruments are safe ways to pay any third party. In order to use these payment methods, you often need to go to the bank’s branch. Nevertheless, these documents are necessary since many colleges and universities prefer them over cheques because there is no chance that they would be dishonoured.
Pay Order vs DD – FAQs
DDs can be cleared at any branch of the same bank but a pay order can only be cleared by the branches of the same bank in the same city.
While DDs are negotiable instruments, Pay Orders are termed to be non-negotiable as they are already paid.
Both DDs and Pay Orders remain significant because many colleges and universities use them as there is no chance of dishonouring DDs and Pay Orders.