Difference between Cheque and Demand Draft (DD) – Cheque and Demand Draft (DD) both are negotiable instruments. Both instruments are used for making payments. With evolution of digital banking products like mobile banking, Internet banking, IMPS, UPI or other tech products, use of Cheques and Demand draft came down significantly. But still millions of transactions takes place through these two instruments. Cheque and DDs are used for fund transfer, making payments, bill payments, ticket booking, business transactions etc.

But still some people are confused between these two terms – Cheque and Demand Draft. There are lots of queries like what is Cheque? what is DD? What is the difference between cheque and DD?  Lets Know –

Cheque vs Demand Draft – Differences

What is Cheque?

Cheque is one the most important negotiable instruments widely used by people for day to day transactions. It has already been discussed in detail in our earlier article. Lets discuss it briefly here-

As per negotiable instrument act 1881, A “cheque” is a bill of exchange drawn on a specified banker and not expressed to be payable otherwise than on demand.

Cheque is a negotiable instrument used to make payment in day to day business transaction minimizing the risk and possibility of loss. It is used by individuals, businesses, corporate and others to transact for making and receiving payment.

There are three parties involved in transaction through Cheque –

• Drawer – is the person who issue the cheque or hold the account with bank.
• Drawee – is the person who is directed to make the payment against cheque.
• Payee – is the person who is intended to receive the payment or in whose favour cheque is issued.

Types of Cheques

• Open / Bearer Cheque – Payment is made to person who bear the cheque or who present it at the counter for payment.
• Order Cheque – Payment is made to the person whose name is specified in the cheque.
• Crossed Cheque – Also known as account payee cheque in which two transverse parallel lines are drawn on the cheque. Such cheque can’t be encashed, they are payable only to the payee’s account.
• Anti Dated Cheque – Cheque bearing the date earlier than the date of presentation for payment is known as anti dated
• Post Dated Cheque – Cheque bearing the date which is yet to come in future is called Post Dated Cheque.
• Stale Cheque – A Cheque turns stale after three months of the date written on cheque. A Stale Cheque can not be honored by the bank.
• Mutilated Cheque – When cheque gets torn into two or more pieces and presented in bank for payment. Such cheques are called mutilated cheque.
• Self Cheque – The Cheque in which ‘self’ is written at the name of payee is known as Self Cheque. A person can withdraw money from his own account using self cheque.
• Blank Cheque – Blank Cheque is a cheque which is only signed but payee name, amount and dateis not written. Such cheques are risky, must be kept in safe custody.
• Banker’s Cheque
• Cancelled Cheque
• Travelers Cheque
• Gift Cheque

To know more on cheque –

What is Demand Draft?

Demand Draft (DD) is a negotiable instrument issued by the bank that directs other bank or its branch to pay the payee, a specific amount stated therein the draft. There are two parties involved in transaction through DD – Drawer (bank or financial institution) and Payee (to whom the payment is made).

Unlike Cheque, DD is a prepaid instrument. Purchaser of the DD has to first make the payment to get issue a DD. So there is guaranteed payment or fund transfer by the bank and no chance of bouncing. In case of Demand Draft, payment is always honored. So DD is always considered to be the safest mode of fund transfer.

Types of Demand Drafts

There are two types of Demand Drafts.

• Sight Demand Draft – These are regular drafts, which are payable as the payee presents the draft to the bank
• Time Demand Draft – These type of DDs are payable only after a specific period as determined by drawer.

Difference between Cheque and Demand Draft ?

Differences between Cheque and DD
Cheque is payable either to bearer or order.	Demand Draft is always payable to a person on order
Cheque can bounce on account of insufficient balance.	DD can’t be dishonored as amount is prepaid.
Cheque Payment can be stopped by the drawee.	In case of DD, payment can’t be stopped.
Cheques are issued by individuals or account holders customers of the bank.	While DDs are issued by bank itself on request of purchaser.
Cheque book facility is available only to customers or bank account holders.	While demand draft facility is available to both account holders and walk in customers.
Cheque need signature of drawer to effect fund transfer.	While in case of DD, signatures are not required.
In Cheque, Drawer and Payee are different person.	In case of DD, both parties are banks.

 

Conclusion

Cheque and DDs are traditional method of payments, losing their place in digital era. Now, there are lots of fancy options like NEFT, IMPS, RTGS, UPI etc., available for fund transfer. Bank charges commission or fee for fund transfer through NEFT and RTGS. But they are very nominal as compared to convenience and ease.

In case of business transactions, Cheque is not usually accepted as the drawer and payee are unknown. There may be risk of cheque dishonor. In such cases, DD is accepted where the fund transfer is guarantee by bank. Demand draft is best option over cheque to receive the payment due to no credit risk.