What is a Draft?
A draft is a written order that instructs a bank to pay a specific sum of money to a designated payee. It is essentially a promise to pay, but unlike a check, a draft is typically drawn by a bank or financial institution.
There are different types of drafts:
- Bank Draft: This is a draft issued by a bank, guaranteeing payment. It is often used for large transactions, international payments, or when the payee requires a guaranteed payment.
- Cashier's Check: A cashier's check is a draft that is drawn on the bank itself, payable to a specific payee. It is essentially a certified check, guaranteeing payment.
- Traveler's Check: A traveler's check is a draft that is pre-printed with a specific amount and can be used as a form of payment worldwide.
What is a Check?
A check is a written order that instructs a bank to pay a specific sum of money from the drawer's account to a designated payee. A check is drawn by an individual or a company. It is a common form of payment for personal and business transactions.
Key Differences Between a Draft and a Check
Here's a table summarizing the key differences:
| Feature | Draft | Check |
|---|---|---|
| Issuer | Bank or financial institution | Individual or company |
| Guarantee of Payment | Guaranteed | Not guaranteed (depends on the drawer's account balance) |
| Security | Generally considered more secure than a check | Can be forged or lost |
| Usage | Often used for large transactions, international payments, or when a guaranteed payment is required | Commonly used for personal and business transactions |
In Summary
While both drafts and checks are written orders to pay money, the key difference lies in the issuer and the guarantee of payment. Drafts are typically drawn by banks, offering a guarantee of payment, while checks are drawn by individuals or companies, with no guarantee of payment.
Remember, choosing between a draft and a check depends on your specific needs and the nature of the transaction.