There are three parties involved in the check cashing process: a drawee, a drawer, and a payee. A drawee is the party that processes the check (usually a bank). A drawer is the party that issues the check (the money will ultimately get removed from their account). And the payee is the person who receives the money.
Here’s a closer look at what a drawee is and how it works.
Definition and Examples of a Drawee
A drawee refers to the person or organization that’s ordered to pay a certain sum of money to a payee. The primary role of a drawee is to redirect funds from the drawer’s account to the payee’s account.
The most common example of a drawee is a bank. They act as a drawee each time you deposit a check or receive a bill of exchange.
How Does a Drawee Work?
The drawee is typically an intermediary or go-between during a financial transaction. In other words, they’re the ones directing funds from the drawer’s account to the payee’s account.
In most situations, the drawee is whichever bank the drawer (i.e., the payer) uses. This bank is responsible for removing money from the drawer’s account to pay whichever checks the account holder issued.
For example, if your friend writes you a check from her bank account at Wells Fargo, Wells Fargo is the drawee. If your employer banks with Chase, then Chase is the drawee of your paycheck.
Anytime you facilitate an outgoing transaction—whether it be writing a check, paying employees, or using online bill pay—your bank is acting as the drawee because they’re the ones responsible for moving money from your account to the payee’s account.
Types of Drawees
A drawee doesn’t always have to be a financial institution. It can also be an independent company that facilitates wire transfers, money orders or check cashing.
For example, suppose you use Western Union to wire money to a relative overseas. Western Union and its bank would be the drawee because they facilitate the transaction. You would be the drawer (i.e., the person who initiated the wire) and your relative would be the payee (i.e. the person getting paid the money).
If you want to get really out of the box, retail stores that accept coupons can also be an example of a drawee.
For example, let’s say you get a coupon in the mail for $2 off Tide. You go to your local grocery store and hand them the coupon at checkout. In this case, the manufacturer is the drawer because it issued the coupon. You are the payee because you’re receiving the discount. And the retail store is the drawee because they’re legally obligated to honor the coupon.
Now let’s say Tide was on sale for $1.99 and your coupon was for $2, resulting in the grocery store owing you 1 cent. The store would give you a penny, then get reimbursed by the manufacturer (i.e. the drawer). The store wouldn’t lose any actual money. They’d simply facilitate the transaction — the same as a bank would if you were cashing a check.
Drawer vs. Drawee
|Issues the check, money order, or cashier’s check||Processes the transaction|
|Will ultimately have funds deducted from their account when the transaction clears||Is responsible for transferring the funds from the drawer’s account to the payee’s account.|
The drawer is also referred to as the payer. They’re the person or entity who actually issues the check or bill of exchange and ultimately ends up having the amount deducted from their bank account balance.
The drawee is the party that channels the money from the drawer’s account into the payee’s account. They don’t actually pay or receive any money. They simply facilitate the transaction. The drawee is usually the drawer’s bank.
- A drawee refers to the person or organization that accepts and pays a certain sum of money to a payee.
- The drawee typically acts as a go-between, redirecting funds from the payer’s account to the payee’s account.
- The drawee is usually a bank, but wire transfer services, check-cashing companies, and even retail stores can also act as drawees.