Demand Drafts (DD) and Banker’s Cheques (BC) are both widely used financial instruments provided by banks for secure and convenient payment transactions. Here are detailed notes on demand drafts and banker’s cheques:
Demand Draft (DD):
- Definition: A demand draft, also known as a bank draft or a draft, is a payment instrument issued by a bank on behalf of a customer. It is a prepaid instrument that guarantees the payment to the recipient or the beneficiary specified by the customer.
- Issuance Process: a. Customer Request: A customer approaches the bank and provides the necessary funds along with the details of the beneficiary, such as name, address, and account number. b. Issuance by the Bank: The bank deducts the specified amount from the customer’s account and issues a demand draft in favor of the beneficiary. c. Security Features: Demand drafts typically include various security features like watermarks, holograms, or special paper to prevent forgery and ensure their authenticity.
- Features and Advantages: a. Wide Acceptance: Demand drafts are widely accepted as a reliable payment instrument, both domestically and internationally. b. Safety and Security: Demand drafts are secure as they are prepaid instruments and require the funds to be available in the customer’s account before issuance. c. Convenience: They offer convenience by providing a secure method for making payments to beneficiaries who may be located in different cities or countries. d. Non-Refundable: Demand drafts are non-refundable, meaning that once issued, the funds cannot be claimed back by the customer unless the demand draft is canceled.
- Usage: Demand drafts are commonly used for various purposes, including payment of fees, purchase of property, settlement of invoices, educational expenses, and remittances.
Banker’s Cheque (BC):
- Definition: A banker’s cheque, also known as a cashier’s cheque or bank cheque, is a payment instrument issued by a bank. Unlike a demand draft, it is drawn on the bank’s own funds rather than the customer’s account.
- Issuance Process: a. Customer Request: A customer requests the bank to issue a banker’s cheque by providing the necessary funds. b. Issuance by the Bank: The bank issues a banker’s cheque payable to the specified recipient or beneficiary. c. Security Features: Banker’s cheques typically possess advanced security features like watermarks, holograms, or other special printing techniques to prevent forgery.
- Features and Advantages: a. Guaranteed Payment: Banker’s cheques provide a guarantee of payment as they are drawn on the bank’s own funds. b. Widely Accepted: They are widely accepted as a secure payment instrument for various transactions. c. Non-Refundable: Similar to demand drafts, banker’s cheques are non-refundable once issued, except in cases of cancellation. d. Convenience: They offer convenience by eliminating the need for customers to carry large amounts of cash.
- Usage: Banker’s cheques are commonly used for high-value transactions, such as purchasing property, paying for expensive goods or services, settling legal obligations, or making large payments.
Differences between Demand Draft and Banker’s Cheque:
- Drawee: In a demand draft, the drawee is the customer’s account, whereas in a banker’s cheque, the drawee is the issuing bank itself.
- Funding: Demand drafts are funded by debiting the customer’s account, while banker’s cheques are drawn on the bank’s own funds.
- Usage: Demand drafts are often used for transactions involving the customer’s account, payments to third parties, or remittances. Banker’s cheques are commonly used for higher-value transactions and more significant financial obligations.
- Security: Both instruments incorporate security features to prevent forgery and ensure their authenticity.
Both demand drafts and banker’s cheques are reliable payment instruments offered by banks, each serving specific purposes based on customer requirements. They provide secure and convenient alternatives to cash and personal cheques, offering assurance of guaranteed payment to recipients or beneficiaries.