Pay Order Vs Demand Draft: 3 Top Facts You Must Be Aware of

  • Published on: 25 Jan 2024
Pay Order Vs Demand Draft: 3 Top Facts You Must Be Aware of

Choosing a pay order vs demand draft depends on your payment requirements and several other factors. This is because while these banking instruments serve the same purpose, they differ in features. 

Although the use of these payment methods has reduced over the years, several merchants and individuals still rely on them. As such, knowing the difference between a pay order and a demand draft can help you choose the right option when needed. 

Read on to know the pay order and demand draft differences, features and more.

What is a Pay Order?

A pay order, also called a banker’s cheque, is issued by the bank on the customer’s behalf, allowing them to pay a third party. With this, you can make secure and cashless payments when you don’t have the beneficiary’s banking details.  

To generate a payment order, you must give the banking executive the required amount in cash or cheque. Once the banker issues a pay order, the same amount will get remitted into the beneficiary’s account on deposit. It is a non-negotiable or pre-paid instrument with zero credit risk. Here are some other features of a pay order:

  • Only the bank can issue a pay order; hence, it’s called a banker’s cheque
  • Once issued, you can’t cancel a pay order
  • It may take up to 24 hours to process a pay order
  • Customer must pay the amount in cash or another accepted mode to place a request for these cheques
  • Only the beneficiary receives payment from it, making it a secure option 
  • It is valid for three months from its issuing date
  • It is payable only in the issuing bank branch within the same city

Also Read: What is a demand draft in banking?

What is a Demand Draft?

A demand Draft (DD) is a negotiable instrument that the bank issues at the customer’s request. This allows the customers to make payments without the risk of cheque bounce or dishonour. 

Similar to the pay order, it requires the customer to pay beforehand to make payment to third-party beneficiaries without the banking details. However, unlike a pay order, it allows you to make payments in any bank branch even outside the city. Here’s an overview of key features of demand drafts. 

  • It includes payee and beneficiary details
  • It is a secure payment option that allows individuals to pay funds directly
  • This instrument requires cash payment beforehand, which reduces the risk of dishonour and payment bounce
  • If the value is over ₹50,000, then the customer must pay by cheque and provide a PAN card 
  • After issuing, you must process a DD within the validity period of 3 months 
  • DD will take a few hours or by the end of the day to process
  • DD allows you to make payments in international currency as well

Pay Order Vs Demand Draft: What’s the Difference? 

Here’s how a pay order differs from DD and vice-versa.

Particulars Pay Order Demand Draft
NegotiableIt is a non-negotiable instrument It is a negotiable instrument 
ClearanceEncashment can be at any branch of the bank within the cityEncashment can be done at any bank branch within or beyond the city 

With these differences in mind, you can easily choose between a pay order and a demand draft to transfer funds. However, if you do not have sufficient funds in your account, you can apply for personal loan to maintain the balance for clearing your payment. 

You can avail of up to ₹5 lacs in a matter of minutes and at an attractive interest rate. In addition, you can enjoy a host of benefits, such as a complete digital application, minimum documents and no pre-closure charges. Download the Personal Loan App or go to our website to get started!  

FAQs on Pay Order vs Demand Draft

What is the purpose of a pay order?

A pay order is a non-negotiable financial instrument that allows payments within the same city. This is a secure method acknowledged by the bank, which gives a guarantee of payment to the receiver. 

How long does it take for a pay order to be clear?

Pay orders are generally cleared within 24 hours of deposit but can remain valid for up to 3 months after issuance. 

Can a pay order be cancelled?

No, once issued by the bank, there is no option to cancel a pay order. 

Is a pay order and a cheque the same?

A pay order is a type of cheque that the banking executive drafts, while account holders can write a cheque themselves.


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