Demand drafts (DD) Vs Cheque - 15 Mints Seminar Notes

Demand drafts (DD) Vs Cheque - 15 Mints Seminar Notes

 

Cheque and Demand drafts (DD) are both negotiable instruments. Both are mechanisms used to make payments.

 
CHEQUE

A cheque is a bill of exchange drawn on a specified banker and not expressed to be payable otherwise than on demand.

DEMAND DRAFT

Demand Draft is a pre-paid Negotiable Instrument, wherein the drawee bank acts as guarantor to make payment in full when the instrument is presented.

Few other differences between Cheque and DD

•    Cheque is issued by the customer whereas DD is issued by the bank

•    In cheque payment is made after presenting the cheque to the bank, while in DD is given after making payment to the bank.

•    A cheque can bounce due to insufficient balance. DD cannot be dishonored as the amount is paid before hand

•    Payment of cheque can be stopped by the drawee, whereas payment cannot be stopped in DD.

•    A cheque can be paid to bearer or order. While DD is paid to a person on order.

•    In cheque drawer and payee are different persons. In DD, both parties are banks.

•    A cheque needs signature to transfer amount, while DD does not require signature to transfer funds.

Types of Demand drafts Vs Types of Cheques

Types of Demand drafts

Sight Demand Draft
      

•    This Demand Draft is payable only after producing certain documents

•    If the receiver fails to provide the specified documents he will not be able to draw the money.

Time Demand Draft
     

•    Time Demand Draft is payable only after the specified time.

•    Before time this Demand Draft cannot be withdrawn from the bank.

Types of Cheque

Bearer Cheque

The Bearer Cheque is a kind of Cheque which can be drawn by any individual who carries the Cheque to the Bank.

Order Cheque

•    Order Cheque can be only drawn by the person whose name is specified in the Cheque.  

•    For drawing money from Order Cheque, the beneficiary should carry some government identity to the bank.

Crossed Cheque

•    The Crossed Cheque can only be redeemed by following few set of instructions like it cannot be redeemed at the cash counter.

•    It can be deposited directly into a bank account.

Uncrossed Cheque

•    Uncrossed Cheque is also called as open Cheque.

•    This kind of Cheque can be redeemed at the cash counter.

Stale Cheque

•    Stale Cheque is a kind of Cheque which can be redeemed only after the date specified on it.

•    This Cheque can be drawn in cash or directly deposited into only after the date specified on the Cheque.

Comparison Chart

 
Specimen of Cheque

 
Parties to Cheque
There are three parties to the cheque:
 

•    Drawer: Maker or Issuer of the cheque.
•    Drawee: Party directed to make a payment, i.e. the bank on which the cheque is drawn.
•    Payee: To whom the amount of the cheque is payable.
 

Specimen of Demand Draft

 

Parties to Demand Draft
In the case of demand draft there are two parties involved in it, stated as under:
 

•    Drawer: Bank or any financial institution,
•    Payee: Party to whom the amount is transferred.

Contents of a Cheque
You can find the following details in a cheque
•    Drawee bank and branch name
•    Issuer’s name
•    Date of issue
•    Name of the beneficiary
•    Account number of the issuer
•    Type of Account (Savings or Current)
•    The amount, both in words and digits
•    Signature of the issuer
•    Unique Cheque number
•    MICR Code of the bank
 

Contents of Demand Draft
•    A demand draft contains the following details:
•    Issuing Date
•    Issuing bank and branch name
•    Recipient’s name in whose favour the DD is prepared
•    MICR Code of the bank
•    DD Number
•    Amount payable in words and digits
•    Bank name, with the city where it is payable.
•    Signature of the authorized signatory and branch manager
 

Conclusion

So, both the instruments, cheque and demand drafts have their own uses and limitations. To deal with millions of transactions on a daily basis, one can avail the benefits of a cheque, which is easy and convenient to issue. Conversely, when the amount needs to be transferred from one place to the another or if it requires a guaranteed payment; demand draft is the best option to go for.

Presented by,

Sivaranjini

Banking Student

Magme School of Banking