Demand Draft is one of the methods for individual, business to transfer fund from one bank to another bank account. It also can be defined as a written document instructing to pay the money to the beneficiary. Unlike Cheques, DD doesn’t require signature to be cached. This was earlier used commonly by telemarketers to withdraw money from customer. The individual who wrote the draft is Drawer and the bank who expected to pay the money is Drawee or Payer. The person/ firm expected to receive the payment is Payee. The money will be credited to the account of the payee, it cannot be encashed by the payee at the counter. In the case of DD, it will not be dishonored as the money is pre paid by the depositor and the bank itself becomes the drawee. In the case of cheque it may get dishonored if there is no sufficient fund in depositors account.
A banker’s cheque (Pay Order) is another payment method which is used by the banks to settle payment obligations on behalf of their customers. This instrument is guaranteed by the bank for its full value and is similar to a demand draft. In practice, these instruments are payable at the branch of issue and are used for payment within the local clearing jurisdiction.