What Is Pay Order In Bank?

A very common question in banking is, what is pay order in bank? A Pay Order (PO) in banking is a secure, prepaid instrument issued by a bank on behalf of a customer. It directs the bank to pay a specific amount to a named person or organisation. Once issued, the bank will credit the required funds and hence guarantee payment to the beneficiary.

1. It eliminates the risk of dishonour.

2. The customer approaches the bank, deposits the amount (or has it debited), and the bank issues the pay order specifying the beneficiary and the amount.

3. Because the funds are secured at issuance, the pay order is treated like a “banker’s cheque” where the bank itself is liable for settlement, not the issuing customer.

4. It is typically non-negotiable, meaning it cannot be transferred to another party by endorsement. The instrument bears “Not Negotiable” and is meant to be encashed or deposited only by the named beneficiary.

What does Pay Order Mean?

Pay Orders are often used when a payee requires guaranteed payment, such as in property transactions, large purchases, admission fees in educational institutions, or where the payee is unlikely to accept a personal cheque due to the risk of bounce. 

1. Because the bank backs the payment, the beneficiary finds it more reliable than a regular cheque.

2. Once issued, cancellation typically isn’t possible (or is very difficult), especially if the payee is out of the city or branch.

Since it is non-negotiable, the named beneficiary can only claim it. I hope you found this information helpful.

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My father is the accountant of a company and several times I have heard him saying that the Pay Order has been cleared. I thought it was like a check or something but once I did ask him about it to know exactly what is pay order meaning. He said that it is a financial instrument that is issued by the bank on behalf of a customer giving an order to pay a particular amount to a particular person living in the same city. 

What is pay order in bank and its difference with Demand Draft?

Apart from knowing the definition of the simple meaning of the term Pay order, you now must also know that in pay order, the word Not Negotiable is pre printed. There is no chance of canceling as the amount is prepaid. Once issued, it remains valid for only 3 months. It can be cleared in any branch of the bank within the city.

Whereas a Demand Draft is pre-paid negotiable instrument wherein the drawee bank acts as the guarantor to make payment in full when the instrument is presented. Demand Draft can be cleared at any branch of the bank inside or outside that particular city where it got issued. Pay order is used to make payment inside the city but DD or Demand Draft is usually used to make payments outside the city and this is the main difference between the two. 

This is what I got to know about the Pay Order meaning.