Bank Draft

A bank draft is defined as a negotiable instrument. A bank draft can be utilized to make payments. A bank draft is issued by the bank along with the guarantee. The overall value of the bank draft is taken out from the account of the requesting payer. Therefore, the balance in the requesting payer tends to be reduced, and usually, it is held in the general ledger account. This is done until the draft is cashed through the payee. Bank drafts give a safe form of payment to the payee.

Customers always require a secured and certified form of mode to make payments. Therefore, a bank draft is considered a mode of payment. A bank draft is also known as the cashier’s cheque. A bank draft is a secured payment option along with which a guarantee is also provided by the bank.

When a customer requests a bank draft, the representatives look if they have a sufficient bank balance in their amount to make payments. Once the verification is completed, the bank tends to withdraw funds from the account of the customer and transfer it into the internal account or general ledger.

Example of a Bank Draft

An example of a bank draft can include a dealer who asked for a bank draft of the told value of the bike. The dealer doesn’t want to take the risk of his payment. Hence, the dealer asked for the bank draft since the risk included in pursuing business with the help of a bank draft is very low in comparison to any other mode of payment.

Difference between Bank Draft as well as Cheque

Cheques along with bank drafts are given to customers through banks to create payments for goods as well as services. A cheque and a bank draft sound like the same thing. Although, there is a huge difference between the cheque and the bank draft. One of the major differences between a cheque and a bank draft is that a cheque is issued through a customer of the bank, and it doesn’t provide any guarantee. On the other hand, a bank draft is issued through the bank, and the guarantee is also provided by the bank.

Mentioned below are some of the other differences between a cheque and the bank draft :

1. A cheque is defined as a payment instrument that is known to permit an individual or a business to make transactions. The facility of the cheque is given by the bank, where the account of the drawer is held. 

In contrast, a bank draft is considered a payment instrument that is known to be issued by the bank. The bank issues a bank draft at the request of the one who is paying. 

2. A cheque is known to be issued by an account holder of the bank. The account holder of the bank orders the bank to create a certain payment to a certain person. 

On the other hand, a bank draft is issued by the bank when the customer of a bank makes a request. 

Individuals who make huge payments tend to have faith in the bank draft more in comparison to a cheque. The major reason behind this is that a bank draft is guaranteed by the bank. 

Conclusion 

A bank draft is defined as a negotiable instrument. A bank draft can be utilized to make payments. A bank draft is issued by the bank along with the guarantee. The overall value of the bank draft is taken out from the account of the requesting payer. Customers always require a secured and certified form of mode to make payments. Therefore, a bank draft is considered a mode of payment. Cheques along with bank drafts are given to customers through banks to create payments for goods as well as services. A cheque and a bank draft sound like the same thing. However, there is a huge difference between the two. One of the major differences between a cheque and a bank draft is that a cheque is issued through a customer of the bank, and it doesn’t provide any guarantee. On the other hand, a bank draft is issued through the bank, and the guarantee is also provided by the bank.