Payee: Definition and Examples
What Is a Payee?
Financial terms can be confusing, and the term payee is just one puzzling word in the language of personal finance. But it’s a pretty simple concept.
Definition: A payee is a person or organization that receives a payment. That payment can come in any form, including cash, a check, a money order, or an electronic transfer of funds. The payee receives the payment from the payer (or “payor” if you prefer), which is the person or organization that makes the payment.
Typical examples of a payee come from banking:
- On a check, the payee is the person or organization to whom the check is written.
- For online payments, you provide payee information when setting up automatic transfers.
Paper checks: The payee’s name goes on the line that says “PAY TO THE ORDER OF.” That person (or business or nonprofit) is the only one authorized to negotiate the check: They can deposit it, cash it, or sign it over to somebody else.
For example, look at your paycheck (or any other check you receive). You should see your name written on the check because you are the payee. But that's an easy example because the check has already been filled out for you. What about when you have to write a check or fill out a money order? Just provide the name of the person or organization that you want to name as payee (either in a "payee" field or on the front of your check).
Example: You write a check to pay rent. Your landlord is the payee, and you write your landlord's name (or the business name) on the check.
Online bill pay: If you’re setting up online bill payments from your checking account, the payee is the business you want to pay (your electricity provider, for example). Providing payee information tells your bank who gets the money and where to send the check. You may also need to provide additional details like your address or account number so the electricity company can apply the payment to your account.
More examples of payees include:
Whenever somebody uses a check or money order for payment, the payee typically must endorse the check by signing or stamping the back of the check. Endorsing authorizes the bank to collect funds on the payee’s behalf. On some items (like checks and money orders), there’s a section for “Payee Endorsement,” which shows where the endorsement should go.
When there are multiple payees listed on a check, any one of them individually might be able to endorse the check, or they might all have to endorse the check. The rules depend on state law and the language on the check.
After endorsing a check, the payee presents it to a bank or credit union for deposit or cash. The financial institutions handle the rest of the process in the background. Your bank collects funds from the bank that the money ultimately comes from.
Representative Payees for Social Security
In some cases, Social Security (and SSI) benefit payments are made payable to a “representative payee” instead of the person actually receiving benefits. This happens when the Social Security Administration believes that an individual (the beneficiary) is not able to manage funds on their own. Somebody else helps with money management.
A representative payee is similar to a standard payee: That person can negotiate the check, but representative payees must manage money for the benefit of the actual beneficiary. As a result, the funds must be spent on (or saved for) things that help the beneficiary. Also, it would be illegal for the representative payee to enrich himself with those funds. For more details, contact the SSA.
Representative payees exist to help a Social Security beneficiary. They take the burden of money management off the beneficiary's plate (for people who are unwilling to do it themselves, or those judged to be unable to manage their funds). An effective representative payee should the beneficiary's life. If your representative payee is doing anything different, notify the Social Security Administration immediately.