Difference between Pay Order and Demand Draft

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Key Difference: Pay order and demand draft are basically used for the same purpose, but are
different from each other. A pay order is a mode of payment that is to be cleared in the very specific
branch of the bank that issued it. Demand draft is a mode of payment that gets cleared in any branch
of the issuing branch.
Pay Order and Demand Draft are the instruments for which the value is
already received by bank.

Pay order is also called as banker’s cheque.

Pay order is not a Negotiable Instrument. A negociable instrument is a
document that guarantees the payment of a specific amount of money
from one person to another. It is a transferable, signed document that
promises the payment of the amout on demand or at a specific time. 

A pay order is payable on the issuing bank, that is they are applicable for
payment within the city and if it is once made, a person cannot cancel the
pay order if the party is in any other city. It is basically issued for local use
and is payable only in that particular town.

The definition of pay order is a “document which instructs a bank to pay a

certain sum to a third party. Such orders are normally acknowledged by
the bank which provides a guarantee that the payment will be made.”

On the other hand, a demand draft is an instrument used for transfer of

money in a particular place. It is a Negotiable Instrument. Demand draft is
issued by a bank and is drawn by one branch of a bank on another branch
of the same bank. In a demand draft, both the drawer and the drawee are
the same persons from the same bank. A Demand Draft has not precisely
defined in the Negotiable Instrument Act. A demand draft cannot be
dishonored. There is a certainty of the payment in the case of a demand
draft. The payment of the demand draft cannot be stopped if once it is
sent. A demand draft is always payable in order for a certain purpose.

Demand Draft, also known as DD, is

prepared by a banker and it is signed by a banker, so the chances of
default are not there. It is not mandatory that one should have a bank
account in the bank from where he is preparing the demand draft.
There are times if someone wants to send money to the party who is out
of station, so he needs to get a demand draft made in his favor. Let’s use
the example of Ben. Ben needs to submit money in the college as soon as
possible for appearing for an exam; the college requires a small amount of
money through demand draft. Why do they insist for a demand draft? The
reason is simple, firstly college may not have time to wait for Ben’s
cheque to clear and secondly, there is no assurance that Ben's cheque will
get cleared or not.

Thus, in pay order and in demand draft, the advantage is that these
instruments are prepaid. It can be paid by depositing it in the bank, or the
amount is reduced from your bank in favor of the third party for the
desired amount.

The key differences are listed in the table below:

 
Pay Order Demand Draft

Document which A signed, written order

instructs a bank to pay by which one party
a certain sum to a third (the drawer) instructs
party. Such orders are another party (the
Definition normally drawee) to pay a
acknowledged by the specified sum to a
bank which provides a third party (the
guarantee that the payee), at sight or at a
payment will be made. specific date.

Not Negotiable
Negotiable Negotiable Instrument
Instrument

Is payable to same
Is payable on the
Payable bank with other
issuing branch
branch

Is not mode of
Payment Is mode of payment
payment

In one place to another

Payment made Locally
place

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