7 Differences Between a Cheque and Demand Draft

Cheque and Demand draft(DD) are negotiable instrument, both are mechanism used to make payments.

A cheque is a Bill of Exchange drawn on a specified banker and not expressed to be payable otherwise than on demand.
The 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.

In business transaction cheque is not usually accepted as the drawer and payee and unknown and there will be credit risk. So, in such cases Demand draft where transfer of money is guaranteed.

Here are few basic difference between cheque and DD

1.) Cheque is issued by customer, whereas Demand draft issued by bank

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

3.) Cheque can bounce due to insufficient balance . DD cannot be dishonored as amount is paid before hand.

4.) Payment of cheque can be stopped by drawee, whereas payment cannot be stopped in DD.

5.) A cheque can be paid to bearer or order. While, DD is paid to person on order.

6.) In cheque drawer and payee are different person. In DD, both parties are banks.

7.) A cheque needs signature to transfer amount, While DD does not require signature to transfer funds

However, banks do charge certain amount depending on the amount on Demand draft. Outstation cheque are also charged.