Payee: Definition and Examples

What Is a Payee?

Payment
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Financial jargon can be confusing, and the term payee is just one puzzling word in the language of personal finance. But it’s a pretty straightforward concept if you think of sending and receiving payments.

Definition: A payee is a person or organization that receives a payment. Payment can be 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.

Payee Examples

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 (or recipient) information when setting up automatic transfers.

Paper Checks

When using checks, the payee’s name goes on the line that says “PAY TO THE ORDER OF.” That person (or business, nonprofit, or other entity) is the only one authorized to negotiate the check: They can deposit it, cash it, or potentially sign it over to somebody else.

For example, on 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? You need to 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, so you write your landlord's name (or the business name) on the check.

Online Bill Payment

If you’re setting up online bill payments from your checking account, the payee is the business you want to pay (your utility provider, for example). Providing payee information tells your bank who receives the money and where to send the check. You may need to provide additional details, like your address or account number, so the utility company can apply the payment to your account. 

Setting up payees in your bank’s online bill payment system makes payments quick and easy, and less likely to make mistakes when everything is entered correctly.

More Examples

  • Any service provider you pay when paying bills (energy, phone, mortgage, or insurance, for example)
  • You, when you receive direct deposit from your employer
  • Any merchant you write a check to
  • A friend you pay through peer-to-peer payment apps like Venmo or PayPal

Payee Endorsement

When 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, and you can also provide instructions when making an endorsement. On some items (like checks and money orders), there’s a section for “Payee Endorsement,” which shows where the endorsement should go.

Multiple payees: If there is more than one payee 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. See more details about multiple payees.

Logistics: After endorsing a check, the payee presents it to a bank or credit union for deposit or cash. The financial institutions (both the receiving bank and the payer’s bank, assuming they’re different) handle the rest of the process in the background. Your bank collects funds from the account that the money ultimately comes from. Learn more about that process.

Representative Payees for Social Security

In some cases, Social Security (and SSI) benefit payments are made payable to a “representative payee” instead of the ultimate beneficiary—or the person entitled to receive benefits. That’s an option when the Social Security Administration believes that an individual (the beneficiary) can’t manage funds on their own. For example, minor children or adults deemed to be incompetent may need a representative payee. In those situations, somebody else can help the beneficiary handle their money.

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, and they should have the skills and judgment to make sound financial decisions. Ultimately, this is for beneficiaries who are unwilling to do everything themselves, or for those judged to be incapable of managing their funds. 

An effective representative payee should improve the beneficiary's life and work in the beneficiary’s best interests. If your representative payee is taking advantage of their position, notify the Social Security Administration immediately.

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Article Sources

  1. Office of the Comptroller of the Currency. "Dictionary of Banking Terms and Phrases." Accessed May 8, 2020.

  2. Huntington National Bank "How to Write a Check." Accessed May 8, 2020.

  3. Huntington National Bank. "How to Endorse a Check: What It Means to Endorse a Check." Accessed May 8, 2020.

  4. Office of the Comptroller of the Currency. "Answers About Endorsing Checks." Accessed May 8, 2020.

  5. Social Security Administration. "Representative Payee Program." Accessed May 8, 2020.