It is issued by the user itself which deals with postpaid payment of often results in the bounce of cheque. This category of demand draft is approved only after the payee submits documents asked by the bank. The draft will not be passed if the payee fails to submit the documents. Now, the payee has two options – first to present the cheque before the bank again within 3 months from the date stated on the cheque, or to legally prosecute the drawer of the cheque. Here, the role of the drawee bank is like a guarantor, which assures the release of payment on presentment of the document or collect the money from his/her bank via clearing mechanism.

Please remember one point that the payee or any other individual cannot visit the bank to revalidate the DD under any circumstances. Before revalidation of the draft, the bank confirms the original facts and prolongs its usage for another three months. Even though the Reserve Bank of India has recommended banks to be equitable in their charges to consumers for demand draft service, the bank still does not have a flat rate for demand draft. In certain circumstances, this pricing fluctuates among banks based on a user’s preference points.

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 difference between cheque and dd of their donations, which can be used for tax purposes. 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.

Are cheques and demand drafts subject to clearance periods?

Cheques and demand draft (DD) are two financial instruments provided by banks to their customers for making payments. Although both of them are used to transfer or encash money, there are some significant differences. On the other hand, demand draft is a financial instrument, used by people for the purpose of transferring money from one place to another.

Definition of Demand Draft

To do this, promptly contact the issuing bank, submit a written request, and pay any applicable cancellation fees. Demand drafts are payable on demand and can only be deposited in a bank, not cashed by the bearer. The drawer requests the DD, the drawee is the bank, and the payee is the recipient, making them ideal for large transactions or when trust is required. However, they carry a higher risk of bouncing if the issuer’s account lacks sufficient funds, which can lead to delays and additional charges. The clearing time for a demand draft can vary depending on factors such as the banks involved and the method of presentation.

These cheques have an extra layer of security which protects the cheque from en-cashing by allowing the payee to withdraw money only after the approval of the drawer. Yes, both need clearing time, but cheques generally take longer to clear than demand drafts. A demand draft is valid for a specific period, usually three months from the date of issue, after which the purchaser may need to request revalidation or a new draft. This category of demand draft is time specific, which means it will be payable only after a specific period.

Differences

In both instruments, the payment is authorised by the payer but facilitated by the bank. With a cheque, the drawer’s signature authorises the bank to release funds, while with a demand draft, the payer must provide funds upfront to the bank, which then guarantees the payment. Time Demand Draft is payable only after a specified period, providing more control over the timing of payments.

1. However, it is still important to handle demand drafts with care and ensure they are delivered to the intended recipient.
2. In both instruments, the payment is authorised by the payer but facilitated by the bank.
3. Please remember one point that the payee or any other individual cannot visit the bank to revalidate the DD under any circumstances.
4. For smaller or routine payments, cheques or electronic transfers are often preferred due to their convenience.
5. Cheque or check refers to the financial instrument, used for making payment to a party.

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. The demand draft procedure starts at the bank, where you must fill in the form. Demand Draft are of two types— Sight demand draft and Time demand draft. Julia Kagan is a financial/consumer journalist and former senior editor, personal finance, of Investopedia. BanksForYou is Free Clean and Minimal Informational Blog about the banks.

Moreover, many institutions and organizations prefer demand drafts as a mode of payment as they are less likely to bounce compared to regular cheques. You can go to your bank or complete an online form that your bank provides. You must submit information like your bank account number, the payee’s full name, and the location of the payee’s institution. You must also include the sum of money, the denomination, the purpose for payment, and directions on whether the funds should be sent to you or straight to the recipient.

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.