Difference Between Bank Draft and Cheque

Bank Draft vs Cheque
 

Cheques and bank drafts are services that are provided by a bank to its customers in order to make payments for goods and services. While they may sound similar to one another there are a number of important differences. The main difference being that a cheque is issued by the bank’s customer and is not guaranteed, whereas drafts are issued by the bank and guaranteed by the bank. The following article takes a closer look at the many other differences between a cheque and a bank draft.

What is a Cheque?

A cheque is a payment instrument that allows an individual or business to settle transactions. The person who makes the payment and writes the cheque is called the drawer of the cheque. The person who receives the cheque and cashes it to obtain funds is called the payee. The cheque facility is provided by the bank where the drawer’s account is held. When cashing the cheque, the payee has to present the cheque to the bank where the payment will be made. If the cheque is a bearer cheque or made out to cash, the payment is made to anyone who presents the cheque to the bank. If the cheque is an order cheque, this means that the cheque specifies a person to whom the funds should be paid , in which case the bank verifies the identity of the payee and make the payment. Cheques are a facility that the bank grants to bank customers that hold current accounts. A cheque is a convenient method of payment, however, a cheque does not guarantee payment. In the event that the drawer’s bank account does not hold sufficient funds to payout the cheque it is bounced or dishonoured.

What is a Bank Draft?

A bank draft is a payment instrument that is issued by the bank at the request of the payer. The drawer is the bank writing out the bank draft, the drawee is the bank’s customer who is requesting the draft to make a payment and the payee is the party that receives payment. A bank draft does not require a signature and, therefore, maybe open to fraud. Certified bank drafts, on the other hand, are bank drafts that are signed and certified by a bank official which makes the draft more secure. A bank draft guarantees payment as the bank ensures that sufficient funds are held in the drawee’s account to make the required payment before the bank draft is issued.

What is the difference between Cheque and Bank Draft?

Banks offer individuals and businesses a number of options to conveniently make payments for goods and services and to settle transactions. Cheques and bank drafts are two such methods of payment. Both these payment mechanisms go through a bank and are services that are offered to the bank’s customers. A cheque is issued by an account holder of the bank ordering the bank to make a specific payment to the person specified, or to the bearer of the cheque. An order cheque is more secure than a bearer cheque or cheque written out to cash as it specifies the individual or party to which the payment is to be made. A cheque may, however, not be guaranteed as it depends on whether sufficient funds are held in the drawer’s account. A bank draft is issued by the bank on the request of a bank’s customer. A bank draft is guaranteed as the bank directly makes the transfer to another account in the same bank or another bank. A bank draft, unlike a cheque, does not require a signature, however, a certified bank draft is signed by a bank official making it more secure and fraud-proof. Furthermore, since a bank draft is guaranteed by the bank individuals making large payments prefer the use of a bank draft instead of a cheque.

Summary:

Cheque vs Bank Draft

• Banks offer individuals and businesses a number of options to conveniently make payments for goods and services and to settle transactions. Cheques and bank drafts are two such methods of payment.

• A cheque is a payment instrument that allows an individual or business to settle transactions.The cheque facility is provided by the bank where the drawer’s account is held.

• A bank draft is a payment instrument that is issued by the bank at the request of the payer.

• A cheque is issued by an account holder of the bank ordering the bank to make a specific payment to the person specified, or to the bearer of the cheque.

• A bank draft is issued by the bank on the request of a bank’s customer.

• Since a bank draft is guaranteed by the bank individuals making large payments prefer the use of a bank draft instead of a cheque.

 

Further Reading:

  1. Difference Between Postal Order and Money Order and Cheque
  2. Difference Between Cheque and Promissory Note
  3. Difference Between Cheque and Bill of Exchange