Demand Draft
A demand draft (DD) is a financial instrument that is used to make payments to a third party. It is a negotiable instrument, which means that it can be transferred from one person to another.
Here are some key features of a demand draft:
- Issued by a bank: A demand draft is issued by a bank on behalf of the payer.
- Payment on demand: The beneficiary can collect the funds immediately upon presentation of the draft.
- No need for account: The beneficiary does not need to have an account with the issuing bank to receive the funds.
- Secure: A demand draft is a secure payment method because it is guaranteed by the issuing bank.
- Fees: The issuing bank charges a fee for issuing a demand draft.
Payment Order
A payment order is an instruction issued by a bank customer to their bank to make a payment to a third party. It is a non-negotiable instrument, meaning that it cannot be transferred.
Here are some key features of a payment order:
- Issued by the customer: A payment order is issued by a bank customer directly to their bank.
- Payment on instruction: The bank will make the payment to the beneficiary only when instructed by the customer.
- Account required: The beneficiary typically needs to have an account with the receiving bank to receive the funds.
- Less secure: A payment order is less secure than a demand draft, as it depends on the customer's instructions and the bank's execution.
- No fees: Banks typically do not charge fees for issuing payment orders.
Differences between Demand Draft and Payment Order
| Feature | Demand Draft | Payment Order |
|---|---|---|
| Issuer | Bank | Customer |
| Negotiability | Negotiable | Non-negotiable |
| Payment | On demand | On instruction |
| Beneficiary Account | Not required | Typically required |
| Security | Secure | Less secure |
| Fees | Charged by bank | Typically not charged |
Which One Should You Choose?
The best option for you will depend on your specific needs.
Choose a demand draft if:
- You need a secure and guaranteed payment method.
- You need to make a payment to someone who does not have a bank account.
Choose a payment order if:
- You need to make a payment to someone who has a bank account.
- You need more control over the payment process.
- You want to avoid the fees associated with demand drafts.
Conclusion
Demand drafts and payment orders are both useful payment instruments. Understanding the differences between them can help you choose the best option for your needs.