A payee refers to a person, business, government, or any other entity that receives payment for providing goods or services. In other words, when a party owes money to another, the latter is the receiver, and the former is the payer. This transfer of value gives the payer the legal right to an asset.
Any financial transaction occurring via cash, check, money order, online payment, promissory notePromissory NoteA promissory note is defined as a debt instrument in which the issuer of the note promises to pay a specified amount to a party on a particular date., coupons of bondCoupons Of BondCoupon bonds pay fixed interest at a predetermined frequency from the bond’s issue date to the bond’s maturity or transfer date. The holder of a coupon bond receives a periodic payment of the stipulated fixed interest rate., etc., involves a recipient. Besides individual, commercial or governmental entities, trusts, custodians can also be recipients. A receiver can be more than one party in an exchange of goods or services or the same party in fund transfer between accounts owned by one person or entity.
- A payee is an individual, corporation, government, or other entity entitled to receive payment from the payer in cash, check, or other means of fund transfer in exchange for goods or services.
- The term finds applicability in various financial transactions, including promissory notes, bills of exchange, paper checks, online (bill) payments, investment management, payee endorsements, and coupon payments.
- Individual, institutional, and organizational are three types of recipients based on their characteristics and the purpose they serve.
- The Social Security Administration appoints a payee representative for beneficiaries unable to manage their Social Security or Supplemental Security Income (SSI) benefit payments.
How Does A Payee Work?
A payee can be anyone who provides goods or services in exchange for money. The party providing an exchange of value in such a financial transaction is called the payer. A fund transfer with an unknown receiver and payer may be considered null and void and subject to legal actions. Based on their characteristics and the purpose they serve, recipients can be of three types:
- Individual: They can be parents, spouses, siblings, relatives, friends, etc., of the party entitled to receive money.
- Institutional: Federal, state, or local bodies, private, profit, or non-profit institutions working for social welfare fall under this category.
- Organizational: This category includes financial institutionsFinancial InstitutionsFinancial institutions refer to those organizations which provide business services and products related to financial or monetary transactions to their clients. Some of these are banks, NBFCs, investment companies, brokerage firms, insurance companies and trust corporations. such as banks and social service agencies, among others.
Applicability Of The Term Payee
A receiver can be anywhere, regardless of the type of transaction. Here are some examples to find them:
#1 – Promissory Notes
It is a financial contract in which one party agrees to pay another a predetermined sum on-demand or at an agreed-upon date. Here, the party that owes the money is the issuer, and the one that receives it is the recipient.
#2 – Bills of Exchange
International tradeInternational TradeThe trading or exchange of products and/or services across international borders is referred to as international trade. It frequently includes other risk factors such as exchange rate, government policies, economy, laws of the other nation, judicial system, and financial markets that impact trade between the two. involves the sale of goods or services in exchange for money from other countries. A bill of exchangeBill Of ExchangeBills of exchange are negotiable instruments that contain an order to pay a certain amount to a particular person within a stipulated period of time. The bill of exchange is issued by the creditor to the debtor when the debtor owes money for goods or services. records such deals and acts similar to a promissory note. It is a written instrument binding one party to pay a predetermined amount to another party either on-demand or at an agreed-upon date.
#3 – Paper Checks
The payee name appears at the top of a paper check. It indicates that the amount is payable exclusively to that person, business, or other entity with an existing banking account. The payer writes a payee check with the words “Pay to the Order of” written on it. The receiver has the option of depositing the check, cashing it, or signing it over to someone else to pay.
#4 – Online Payments
The recipient details, such as name and bank account, are mandatory while paying an individual or entity online. Providing this information will let the bank know to which payee account it should transfer funds. Furthermore, the payer can make the bill payment to a utility provider with ease using receiver information.
# 5 – Investment Management
Individuals who have to make a regular premium payment or pay a monthly installment will need their recipient information. In this case, the receiver is the institution or investment agency that will transfer the payer the invested amount at maturity. The payer can either pay in cash to respective agents or sign a paper check.
#6 – Payee Endorsements
In this mode of payment, the recipient must sign or stamp the back of the financial contract, which they accept for payment. In this case, the means of fund transfer can be a paper check or money order. The endorsement authorizes the bank to collect the fund on behalf of the receiver. If necessary, they can add instructions while drafting an endorsement.
# 7 – Coupon Payments
The coupon recipient is the receiver, while the bond issuer is the payer in bond coupon payments. A coupon is the annual rate of interest applicable on a bond. It is the portion or percentage of the face value and is paid until maturity starting from the date of issuance.
Who Is A Representative Payee?
The Social Security Administration appoints a representative receiver for beneficiaries as part of the Social Security Representative Payment Program. A payee representative is responsible for managing Social Security or Supplemental Security Income (SSI) benefit payments of individuals or entities that are not trustworthy or unable to do it on their own.
In addition, they receive an annual Representative Payee Report that details the benefits received. Simply put, they work toward improving the lives of the beneficiary, such as people with dementia, by spending their Social Security income and keeping records of that.
Recipients falling under the following categories, however, are not required to fill out the report under the new law:
- Natural or adoptive parents of a child payer or beneficiary sharing the same house
- Beneficiary’s spouse
- Biological or adoptive parents of a disabled adult beneficiary, residing in the same house
- Legal guardians of a child beneficiary sharing the same house
Payee vs Payor
A receiver is an individual or entity entitled to receive the payment, while a payor or payer is the one who makes it. Some of the significant differences between them include:
|Receives products or services or anything of value||Offers products or services or anything of value|
|Can be an individual, business, or any public entity||Can be a person, business, government, trust, or custodian|
|Sends/pays money||Receives the payment|
|Owes money to a party, hence is also considered a debtor||Acts as a creditor expecting the outstanding payment from the debtor|
Frequently Asked Questions (FAQs)
A receiver is an individual or entity entitled to receive payment in exchange for goods or services. The transfer of value confers legal ownership of an asset on the payer. The term finds applicability in almost every financial transaction, including cash, promissory notes, bills of exchange, paper checks, online (bill) payments, investment management, payee endorsements, and coupon payments.
Based on who the payer or beneficiary is going to pay, there are three categories of a receiver:
Individual: Parents, spouse, siblings, relatives, friends, etc., of the beneficiary or any other individual entitled to receive money.
Institutional: Federal, state, or local bodies, and private, profit, or non-profit or other entities running for social welfare.
Organizational: Financial institutions, including banks, social agencies, and others.
Being someone’s receiver means being appointed as the payee representative under the Social Security Representative Payment Program for beneficiaries who cannot manage their Social Security or Supplemental Security Income (SSI) benefit payments.
This has been a guide to Payee and its meaning. Here we discuss the applicability of term payee, the representative payee, and how it works along with its differences with the payer. You can learn more from the following articles –