Demand Draft

Demand Draft

A demand draft is a written order from a bank customer to the bank requesting payment of a specified sum of money on demand. It is also known as a negotiable instrument or simply a draft.

Key Features of a Demand Draft:

• Orderer: The bank customer who issues the draft.
• Payee: The person or company to whom payment is due.
• Amount: The specified sum of money to be paid.
• Payment Due Date: The date on which payment is due.
• Negotiable: Can be transferred to another person by the original payee.

Types of Demand Drafts:

• Sight Draft: Payment is due immediately upon presentation of the draft.
• Time Draft: Payment is due on a specified date after the draft is presented.
• Open Draft: Payment can be made at any time, not just on the due date.

Uses of Demand Drafts:

• Payment for goods and services
• Payment of invoices
• Guarantees
• Letters of credit

Advantages:

• Convenience: Easy to negotiate and collect payment.
• Security: Bank guarantees payment.
• Speed: Payments can be processed quickly.

Disadvantages:

• Fee: Banks may charge fees for issuing or negotiating drafts.
• Time Delay: May not be suitable for emergency payments or where immediate payment is required.
• Overdraft Protection: May not be covered by overdraft protection.

Additional Notes:

• Demand drafts are typically used in commercial transactions, not personal ones.
• The drawer on a draft is the bank customer who issues the draft.
• The endorsee on a draft is the person who accepts the draft as payment.
• A demand draft can be cashed at any bank.