Demand Draft

  • Post author:
  • Post last modified:December 9, 2023
  • Reading time:3 mins read
  • Post category:Content

A Demand Draft (DD) is a financial instrument used for the transfer of money from one bank account to another. It is often considered a secure and convenient method of payment, especially for transactions involving significant amounts of money. Demand drafts are commonly used in various financial transactions, including business payments, educational fees, and other forms of remittances.

Here are key features and aspects of a Demand Draft:

1. **Issuance:**
– A Demand Draft is issued by a bank or financial institution on behalf of an individual or entity. The person or entity requesting the demand draft is known as the “drawer.”

2. **Drawer and Drawee:**
– The drawer is the person or entity who requests the demand draft and makes payment to the bank to cover the draft’s value. The drawee is the bank or financial institution that issues the demand draft.

3. **Payee:**
– The payee is the person or entity named in the demand draft as the recipient of the funds. The payee is typically specified by the drawer at the time of issuing the demand draft.

4. **Prepaid Instrument:**
– A Demand Draft is a prepaid instrument. The drawer needs to deposit the full amount of the demand draft, including any applicable fees, with the issuing bank before the draft is issued.

5. **Validity:**
– Demand drafts typically have an expiration date. If the draft is not presented for payment within a certain period, it may become invalid, and the payee may need to request a new one.

6. **Payment Process:**
– To use a demand draft, the payee must present it to the drawee bank for payment. The payment is made by the drawee bank to the payee, and the transaction is completed.

7. **Safety and Security:**
– Demand drafts are considered a secure form of payment because they are prepaid. Once issued, the funds are guaranteed, and the payee is assured of receiving the specified amount.

8. **Crossing and Noting:**
– A demand draft can be “crossed” by drawing two parallel lines across its face. Crossing signifies that the amount should only be credited to the payee’s bank account and cannot be encashed over the counter. “Noting” refers to recording the payment in the bank’s records, providing a trail of the transaction.

9. **Cancellation and Refund:**
– In certain situations, the drawer may request the cancellation of a demand draft. If the demand draft has not been presented for payment, the issuing bank may cancel it and refund the amount to the drawer.

10. **International Transactions:**
– Demand drafts can be used for international transactions, where they are known by various names, including “banker’s drafts.” They provide a secure means of transferring funds across borders.

Demand drafts are particularly useful when a secure and guaranteed form of payment is required. They are commonly used in various industries, including education, real estate, and trade, where the parties involved may not have a direct banking relationship. While demand drafts offer security, it’s essential for users to be aware of any associated fees and the expiration date to ensure a smooth transaction.