Drafts vs Checks: Difference and Comparison

When you want to pay someone for services rendered, you will have to give a draft or a check. You can even transfer money to your friends and family members through the use of drafts and checks.

Key Takeaways

  1. Drafts are payment orders issued by a bank on behalf of a payer, guaranteeing the payment’s availability and legitimacy.
  2. Checks are written orders directing a bank to pay a specified sum from the account holder’s funds to a designated payee.
  3. Drafts offer more security due to bank involvement, while checks rely on the account holder’s available balance and can be subject to fraud.

Drafts vs Checks

The difference between drafts and checks is that draft is a written order to pay the specified amount to the specified person/entity, while a check is a simple order to transfer funds from one bank account to the other.

Drafts vs Checks
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A draft is essentially a check that has not been signed. The bank lets you get money from your account before signing the check. This means that the money is payable to whosoever signs it. If your bank allows you to get money without having to sign the check, you will get an un-signed check or a draft. If you are giving someone money, you will get an un-signed check for the money.

Various financial institutions have accepted checks as a form of payment for goods and services. Checks are one the most common ways to pay bills and grant credit. Checks are a form of a financial draft that is given by a drawer that authorizes a payee to make a payment, after which it will be deposited in a bank account.

Comparison Table

Parameters of ComparisonDraftsChecks
SignatureThere is a need for a signature in case of a draft issue.A signature is a must in case of issuing a check.
Protection of PaymentPayment is assured while issuing an order draft by the bank.A check is withdrawn only if there is money in the bank account of the holder.
Issued toA draft is issued to a person or an organization’s bank.A check is issued to most organizations and persons of business interests.
Issued byA draft is issued by a bank.A check is issued by a  chequebook holder.
BouncingA draft can never be a bounce.Check bouncing is a common instance.

What are Drafts?

The draft is a document that authorizes its holder to make a payment or collection on behalf of the document’s issuer. A draft is drawn on a particular bank but may be paid at another bank. The draft is a paperless instrument that is used to transfer money from one bank to another or from one person to another.

 For example, one can use a paperless instrument to transfer money from his/her bank account to another person’s bank account. The draft has to be authorized by the account holder. The authorized person can give his/her authority to the bank or the person who is supposed to receive the money.

The draft is an instrument of payment. It has to be accepted by the person who has to make the payment. Drafts are the funds withdrawn from the bank account by the depositor. It is safer than checks as it is made in the bank’s name, so it is not forged.

A draft, however, has guaranteed money transfer as it is issued by the bank and not the customer. There is no chance of a draft being bounced as the money is sent to the customer before the draft is issued, and this is a more assured and safer money transaction.

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What are Checks?

The word cheques come from the French word for the check, as it was first developed as a method for people to check their bank accounts. A check is a piece of paper written with a dollar amount and a signature, which is used as an electronic payment through a banking system. Depending on the user’s preference, they can be written for any amount and can be reused or destroyed. They’re common in the United States and the United Kingdom.

Checks may be used for personal or commercial transactions and can be used online. While they’re not as common as debit cards and credit cards, the use of checks is starting to expand to become a more viable option. Check as a term is used as a written order to a bank to pay a specific amount of money from the drawer’s account to the payee’s account.

A check is a document that orders a bank to pay a specific sum of money from the drawer’s account to the payee. It can be converted into cash, is a handy replacement for money, and is considered plastic money. A check must be: endorsed by the payer of the check. A check cannot be transferred from one person to another.

 A check can be cancelled by the drawer or the banker based on insufficient funds. A check is a document of the title of a balance in a bank account.

checks

Main Differences Between Drafts and Checks

  1. A person issues a draft from his bank, while a check is issued by a customer having a chequebook.
  2. Drafts can also be said to be a check which is legalized. Whole checks are said to be paperless financial instruments for fast payment.
  3. A draft is issued to a customer after the money is transferred to the desired bank account, while a check is issued to a customer to withdraw money within a certain period from the account.
  4. A draft is made by a bank to a bank, while a check is issued by the bearer of the check to another person or organization.
  5. Drafts are highly protected in terms of money transfers, but without a signature, they are subject to fraud. While checks may not assure money transfer, but fraudulent checks can be prevented with the help of the mandatory signature of the bearer.
Difference Between Drafts and Checks
References
  1. http://dspace.library.iitb.ac.in/jspui/handle/10054/1728
  2. https://link.springer.com/content/pdf/10.1007/BF01238024.pdf
  3. https://dl.acm.org/doi/abs/10.1145/2145204.2145229?casa_token=Gg6A4WJ-9X4AAAAA:X9S9sSWcxZpIEQBwjrBQOqSDeZr1oTwM7_HIOkeYSJYu5ruBCT0pSmrz_aowgOpkZ4px7MiiYIU

Last Updated : 13 July, 2023

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