Knowing your financial terms can save you from any miscommunications that could be made. Businesses and law firms may use some terms that you are unfamiliar with. Today’s word is Payee.
What is a payee? A payee is an individual or organization who is receiving the payment. This payment can come in any form — electronic, cash, paycheck, a money order. The payer is the individual or organizations who is making the payment. These are some of the very basic and fundamental terms.
Payee Example
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.
On Paper Checks, the Payee goes on the line that says “Pay to the order of.” That person is the only one that has the authority to negotiate the check; deposit it, cash it, or sign it over.
- Example: If you are paying at the grocery store with a check, let’s say for example, Walmart, you’d but “Walmart” on the Pay to the Order of line.
With Online Bill Payments, the organization that you’re paying will be the payee. Providing the bank with this information gives them the ability to make the correct money transfer. There are cases where you may have to provide addition information like your address or account number though.
- Example:
- 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
Payee Endorsement
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 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 benefits payment 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 helps someone with their own 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. Representative payees exist to help a Social Security beneficiary. They take the burden of money management off the beneficiary’s plate.
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Bottom Line
Knowing business and law terms is important when discussing important payments. Writing down the name of the individual or organization, the payee, on the check is one of the fundamental steps of writing a check and no mistake should be made when doing it.
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