Meaning of Bank Draft

Bank draft or Demand Draft is a kind of cheque provided to the customer of a bank or acquired from bank for remittance purpose. Here the payment is guaranteed by the issuing bank of this financial instrument to the payee on the behalf of payer.

When the bank draft is to be issued by bank, then they generally do the review of payer to see whether sufficient funds are available. Once they are satisfied, the funds are transferred from payer account to payee account. The bank draft issued ensures the safe transfer of fund from payer to payee.

That’s why bank drafts are safer than normal cheque where it is issued and transferred to payee without considering the sufficient balance in payer account. In cheques, when the payer doesn’t have sufficient balance, then the cheque stands dishonoured and payee receives no money. On the other hand, bank drafts are issued only after considering sufficient balance available.

However one can request for bank draft and pay cash for it, subject to applicable laws and bank policies.

Once the bank draft is issued, it cannot be cancelled or withdrawn, considering that the transaction has already occurred. However where the bank draft has been stolen or damaged, then it can be cancelled or replaced as long as the purchaser has proper documents regarding it.

Where Bank Drafts are better option:

  • A buyer can demand the payment in bank draft when the buyer seller have no relation.
  • Where the sales price is quite high, generally in case of sale of property or any heavy machinery. Then seller can demand bank draft.
  • Any other case where seller believes that collecting payment is quite difficult.