Bank Draft vs Certified Cheque

Updated on April 4, 2024
Article byAnkush Jain
Edited byAnkush Jain
Reviewed byDheeraj Vaidya, CFA, FRM

Difference Between Bank Draft and Certified Cheque

A bank draft is a financial instrument issued by a bank in favor of a specified entity on the payer’s request where the bank already receives payment. The amount is transferred to that entity when it is presented. In contrast, a certified cheque is issued by someone who has an account with the bank to favor the payee.

Bank Draft vs Certified Cheque

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Certified cheques and bank drafts are some of the services banks offer to their customers, which help them pay for goods and services. Though they sound similar, there are several points in which they differ. Both of these instruments draw from available funds in the bank account. The goal is the same. However, the method to achieve the same objective is different.

Bank Draft Vs Certified Cheque Explained

Bank drafts vs certified cheques are two services provided by banks to their customers to aid the process of paying for their goods and services. The major difference, however, is who issues the instrument to pay. A bank draft is issued by the bank on the request of the payee to a specific account whereas a certified cheque is issued by the payee directly which is paid through their bank account.

 Understanding how these instruments work is important in choosing the right one for the business’ specific situation.

Many businesses accept card payments, but sometimes a negotiable instrumentNegotiable InstrumentA negotiable instrument refers to the transferrable and signed written document whereby the payer guarantees or promises to pay a certain sum on a specific future date or as on-demand to the payee or bearer. It includes bills of exchange, delivery order, promissory note, customer receipt, etc.read more like a certified cheque and bank draft are requested. Both are treated as equivalent to cash.

The main difference is based on who issues them and at what stage the bank withdraws the amount from the account to cover the cheque. The usage of either of these is reached after the business compares bank draft vs certified cheque costs. For a particular situation, the business might change its usual mode of payment to increase efficiency and profitability.

It is necessary to understand both of these instruments provided by the bank. The bank offers the certified cheque and bank draft which is used widely. Different countries have different names, and the result is the same even though the path is different. These instruments help in settling for goods and services. Therefore, it is very important to understand these instruments to decide which ones to use.

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Infographics

Let us understand the comparison between both these concepts in detail with the help of the infographics below. The visual representation will help us understand the intricacies in-depth.

Bank-Draft-vs-Certified-Cheque-info

Key Differences

Despite the differences in their fundamentals which we have discussed in the sections above, there are a few other differences that set both these forms of payment apart. Let us understand them through the points below.

  • The key difference is that a certified cheque is used by its customers to pay for goods and services, and a bank draft is an instrument one can use for the same except that bank provides it.
  • The account holder is the drawer of the cheque. On the other hand, in the case of a bank draft, the bank issues it. Therefore, the holder requesting is a drawer, and the party receiving is a payeePayeeA payee refers to a person, business, government, or any other entity that receives payment for providing goods or services.read more.
  • For a bank draft, a signature is not required. In comparison, certified cheques require a signature and are processed when the bank employee approves them. That means enough funds are available to process the certified cheque.
  • As the above suggests, a certified cheque is charged more than a bank draft since it is certified and signed. A bank draft is prone to fraud and can be misused. Hence, their fees are lower.
  • A bank draft requires the date, the amount payable, and the payee’s name. Similar to this, particulars necessary for a certified cheque are date, name, amount (in words and the figure), and signature.
  • The process followed by a bank draft is as follows:
    • In the case of a bank draft, some bank representatives act as an intermediary.
    • The bank issues a draft on your request but processes it only after verifying that the account has sufficient funds to cover the cheque.
    • At this point, the bank deducts the amount from your bank account.
    • The process is complete once the recipient deposits or cashes the draft.
  • The procedure followed for a certified cheque is as follows:
    • In the case of certified cheques, an intermediary has also been involved: the bank employee.
    • The bank employee checks if the issuer has sufficient funds in the account.
    • After it is confirmed, the employee processes it. The amount is deducted after the employee certifies it.

Comparative Table

The bank draft vs certified cheque costs differ, and businesses take a call after considering the particular deal or situation. Let us understand other such differences through the comparative table below.

BasisBank DraftCertified Cheque
Key difference
A bank draft is a payment instrument issued by the bank at the payer’s request.Cheques are given by customers and are not guaranteed. However, a certified cheque is similar except that the bank employee verifies if the fund is available to make a payment, keeps that amount aside, and signs or certifies that the amount is available.
MeaningA bank draft is a payment instrument issued by the bank at the payer’s request. It is a payment instrument that allows businesses and individuals to settle transactions. The bank provides this facility where the drawer’s account is present.
IssuerThe bank issues a bank draft on request from its customers. Then, the bank directly transfers to the bank account, which may be in the same bank or another.The certified cheque is issued by a customer who holds an account in the bank and orders the bank to pay the specified person or the bearer of the cheque.
SignatureA bank draft does not require a customer’s signature. However, the bank official signed a certified bank draft, making it more secure.A certified cheque requires the customer’s signature. Also, a bank certifies a cheque by adding the word ‘certified’ to the signature.
Process1. In the case of a bank draft, some bank representatives act as an intermediary.
2. Bank issues a draft on your request but processes it only after verifying that the account has sufficient funds to cover the cheque.
3. At this point, the bank deducts the amount from your bank account.
The process is complete once the recipient deposits or cashes the draft.
In the case of certified cheques, an intermediary has also been involved: the bank employee.
2. The bank employee checks if the issuer has sufficient funds in the account.
3. After it is confirmed, the employee processes it. The amount is deducted after the employee certifies it.
Stop PaymentThe possible way to stop payment for a bank draft is to lose or destroy it. The bank may provide a replacement issue draft instead.It will make a certified cheque that guarantees payment. That means it is impossible to stop payment after the accredited cheque is issued.
SecurityBanks charge a lower fee for bank drafts than certified cheques.The certified cheque is guaranteed, and banks charge a higher fee to issue it.
ParticularsDate, the amount payable, and payee’s name.Date, name, the amount in words and figures, signature.

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  1. Jonathan Tamonob says

    This information very help full.

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