Payee - Definition and Examples

What is a Payee?

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Sometimes financial jargon is puzzling, and payee is one of those words that causes confusion.

A payee is a person or organization that receives a payment. That payment can be in any form, including cash, a check, 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.

A common example of a payee is found in banking (on a check): the payee is the person or organization to whom the check is written.

The payee’s name is written 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 on the check because you are the payee. But that's an easy example because the check has been filled out for you. What about when you have to do it? Simply 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).

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 means telling your bank who gets the money and where to send the check. Of course, you'll also need to provide reference information (such as your address or account number) so the electricity company knows who sent the money.

Example: you write a check to pay the rent. Your landlord is the payee, and you write your landlord's name (or the business name) on the check.

More examples of payees include:

  • Any service provider you pay when paying bills (energy, phone, mortgage, or insurance, for example)
  • You, when you get direct deposit from your employer

Payee Endorsement

When a check or money order is used for payment, the payee generally has to endorse the check (by signing or stamping the back of the check). This authorizes the bank to collect funds on the payee’s behalf. On some items (like checks and money orders), you’ll see a section for “Payee Endorsement,” which tells you 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 (depending on how the check is written).

Once a check is endorsed, the payee presents it to a bank or credit union for deposit or cash. The financial institutions handles the rest of the process in the background (your bank will handle the work of collecting 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 is done when the Social Security Administration believes that an individual (the beneficiary) is not able to manage funds; somebody else is brought in to help with money management.

A representative payee is similar to a standard payee (that person can negotiate the check), but representative payees need to manage money for the benefit of the actual beneficiary. That means the money must be spent on (or saved for) things that help the beneficiary, and the representative payee cannot enrich himself with those funds. More details are available from 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 judged to be unable or unwilling to do it themselves), presumably with the goal of improving the beneficiary's life. If your representative payee is doing anything different, notify the Social Security Administration immediately.