Choosing a pay order vs demand draft depends on your payment requirements and several other factors. While these banking instruments serve the same purpose, they differ in their key features. This 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?
It is issued by the bank on your behalf. Also called a banker’s cheque, it allows payment to an unknown third party. 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. Here are some other features of a pay order:
- Only the bank can issue a pay order
- Once issued, you can’t 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 Them?
Here is an overview of the difference between a pay order and a demand draft.
| Particulars | Pay Order | Demand Draft |
|---|---|---|
| Negotiable | It is a non-negotiable instrument | It is a negotiable instrument |
| Clearance | Encashment can be at any branch of the bank within the city | Encashment can be done at any bank branch within or beyond the city |
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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.
