Reviewed by Jan 05, 2021| Updated on
A payee refers to a party on one side of a transaction who receives payment. He is paid either by cash, cheque, or by any other transfer medium by the payer. In return, the payer may receive goods or services. The name of the payee is mentioned on the bill of exchange. It generally refers to an individual or an entity, such as a business, trust, or custodian.
In the banking sector, the payee should have an active account in a bonafide position, where the payer can transfer funds. For coupon payments from bonds, the party getting the coupon is the payee and the bond issuer is called as the payer.
In case of a promissory note, where one party undertakes to pay another party a predetermined amount of money, the payee shall be the party receiving the payment. Whereas, the party making the payment is called as the payer.
Under the investment management systems, usually, the payee account is separate from the client's account. It is done to ensure that the payee account receives the payment on behalf of the client's account.
There can be multiple payees in one transaction. This ideally happens in electronic transfers when an individual withdraws money from the payer's account and divides it into different proportions for payee allocations.
These types of transactions may require approval for numbers, volume, and types of accounts, depending on the banking institution. It is a safe practice to ensure that the payer and the payee agree on the amount being transferred between the parties.
Seldom, the payee and payer may be the same party. It can occur when an individual writes cheques, makes withdrawals, and electronically transfers or deposits funds from one account to the other, both of which belong to him.
When somebody uses a cheque or money order for payment, the payee ideally must endorse the cheque by signing or stamping the back of the cheque. Endorsing will authorise the bank to collect funds on the payee's behalf. After endorsing a cheque, the payee presents it to his banker for deposit or cash. The banks handle the backend process.