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

Pay orders and demand drafts are both prepaid banking instruments used to make secure payments, but they are not the same. A pay order is usually used for payments within the same city or local banking area, while a demand draft is commonly used to transfer money to another city or location. Since both are issued by banks only after receiving the amount upfront, they are considered safer than personal cheques.  
Choosing a pay order vs demand draft depends on your payment requirements and several other factors. It includes clearance time, amount, acceptability and more. Although their use 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 their differences, features and more. 

What is a Pay Order? 

Pay order is also called a banker’s cheque that allows payment to an unknown third party. It is a payment instrument issued by the bank on your behalf. Using this, you can make secure and cashless payments without the banking details of the beneficiary. 
 
To generate it, you have to give the required amount in cash or cheque to the banking executive. Upon deposit, the same amount will get remitted into the beneficiary’s account. Now that you know the meaning of pay order, here are some other features: 

• Only the bank can issue a pay order 

• Once issued, there is no provision to cancel it 

• It may take up to 24 hours to process a pay order 

• You 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 

• It is a non-negotiable or pre-paid instrument with zero credit risk 

What is a Demand Draft? 

DD is a negotiable instrument that the bank issues at your request. This allows you to make payments without the risk of cheque bounce or dishonour. 

Similar to the pay order, it requires you to pay beforehand to make payments to third-party beneficiaries without their 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 you must pay by cheque and provide a PAN card 

• You must process a DD within the validity period of 3 months once issued 

• It may take a few hours to process 

• It allows you to make payments in international currency as well 

Also Read: What is a demand draft in banking? 

What’s the Difference Between Demand Draft and Pay Order? 

Here is an overview of the difference between a pay order and a demand draft. 

Table Mentioned 

When Should You Use a Pay Order or Demand Draft? 

• Use a pay order or demand draft when you need to make a secure payment. 

• These instruments are useful when the receiver wants a guaranteed payment from the bank. 

• Use them when making payments for: 

• School, college, or university fees 

• Government charges or application fees 

• Property or rent-related payments 

• Business transactions 

• Tender or contract payments 

• Loan or insurance-related payments 

• A pay order is usually used for payments within the same city or local area. 

• A demand draft is commonly used for payments to someone in a different city or location. 

• They are preferred when the receiver does not accept: 

• Cash 

• Personal cheques 

• Online transfers 

• They help reduce the risk of: 

• Cheque bounce 

• Payment failure 

• Delayed settlement 

• Use a pay order or demand draft when you need proof of payment for official or financial records. 

Cancellation and Reissuance of Pay Order and Demand Draft 

• Cancellation Request 

• Submit a written request at the issuing branch with the original instrument. 

• Provide valid ID and account details for refund. 

• If lost, submit an indemnity/declaration as per bank requirements. 

• Cancellation Process 

• Bank verifies instrument status (must be unpaid/uncleared). 

• Additional checks may apply for third-party instruments. 

• Upon approval, the instrument is cancelled and refund is initiated. 

• Refund Timeline 

• 1–3 working days if original instrument is submitted. 

• Longer timelines for lost instruments due to additional verification. 

• Refund is credited to the account or via approved mode. 

• Reissuance Request 

• Submit a written request for cases like errors, expiry, damage, or loss. 

• Original instrument required (except in case of loss with indemnity). 

• Reissuance Process 

• Bank verifies details and unpaid status. 

• New instrument issued with updated details and fresh validity. 

• Charges 

• Applicable cancellation and reissuance fees as per bank policy. 

• Additional charges may apply for duplicate issuance or indemnity. 

• Taxes levied as applicable. 

 
Knowing the features of pay order vs demand draft, you can easily choose the most convenient fund transfer option. However, if you do not have sufficient funds in your account, apply for a Fibe Instant Personal Loan to maintain the balance for clearing your payment. 

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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. 

Is pay order and DD the same thing? 

No, PO is useful to transfer funds within the same city, but DD is valid across India. One thing that both have in common is that you have to request the bank to issue it. 

Is a pay order safe? 

Yes, it’s a secure method of payment transfer as it is issued by the bank