Bank draft and pay order

Definition of Bank Draft and pay order

1. Bank Draft

2. A bank draft is one kind of negotiable instrument. It is a written order by one branch of bank to another branch of the same bank to pay certain sum of money on demand to the person named.

3. Mr. Nil is looking to purchase a used car for his son Mr. I fti , as he recently turned 18 years old. He negotiated with Mr. Assad to buy his 2014 Hyundai Accord. Since Mr. Assad doesn’t know Mr. Nil, he doesn’t want to take a risk that Mr. Nil’s personal check not clear, so he requires Mr. Nil to pay with a bank check. In order to settle the transaction, Mr. Nil asked his bank to issue a bank draft for $8,000 to pay Mr. Assad. Example

4. Features of Bank Draft: •It is conditional order for payment. •It is drawn by one branch to another branch. •The bank of the two branches will be same is payable on demand. •It is payable on demand. •The amount specified is written on it. •The name of specified person is also written on it. •It bearer signature of the issuing authority. •Branch code number is also written on it.

5. •It is very useful for trade. •It is useful for the settlement of debts. •It is a reliable credit instrument for remitting money. •He payment of draft through telegraphic transfer (T.T) is made with in a few hours. Advantages Of Bank Draft

6. Pay order

7. Pay order is also called as banker’s cheque. Pay order is a document which instruct a bank on behalf of the customer to pay a certain sum to a third party. Such orders are normally acknowledged by the bank which provides the guarantee that the payment will be made.

8. Features of Pay Order • Pay order are not dishonored as amount is prepaid. • Once issues, the Pay Order is valid for 3 months. • Pay Order are “Not Negotiable” instrument. • These are cleared in any branch of bank in the same city. • Preferred by schools and colleges.

9. Bank Draft Pay order A bank draft is one kind of negotiable instrument. It is a written order by one branch of bank to another branch of the same bank to pay certain sum of money on demand to the person named. Pay order is a document which instructs a bank to pay a certain sum of a 3 rd party. Bank draft is a negotiable instrument Pay order is not a negotiable instrument Bank draft has three parties drawer, payee, and Drawee. Pay order has two parties Drawer and Payee. Bank draft is widely used both in inland and foreign country Pay order is used only in banks located under one clearing house. Bank draft can be cleared at any branch of the same bank Pay order to be cleared in any branch of the same bank Difference between Bank draft and Pay order

10. A T H N K S E V E R Y T O O N E