Payee Definition

A payee is a person to whom the payment for the note is to be made. This is the person who will receive cash for note funding.

How Does a Payee Work?

Payees commonly appear when doing a transaction with a bank like a check payment or an online banking payment.

Checks

A payee in a check is the person or entity to whom the check is due. It follows after the phrase “Pay to the order of” in the face of the check. This person or entity is solely the one to whom the check can be negotiated. A check can be negotiated via deposit to account or encashment.

In some cases, however, a check issuer may put “Cash” as payee of a check. While there is nothing wrong with it, such practice may not be considered very safe especially because the payee in this case is not clearly specified. Thus, anyone who holds the check may potentially have the check cashed or deposited to his/her account.

Online Banking Payment

The payee in the case of an online banking payment is simply the person to whom the payment is due.

Unlike that of paper checks, a payee’s name must be clearly and correctly indicated in setting up an electronic payment and it has to match with its corresponding account number to avoid transaction processing failure.

Why Does It Matter Who the Payee Is?

Whether you are processing an online payment or writing a check, it is important to provide information of who the payee is in order to be specific as to whom you are issuing a certain payment. It will define who will receive the payment and where to send the electronic payment or to whom the check is due.

Special Consideration

A special consideration, however, is given to representative payees who are quoted in Social Security and Supplemental Security Income benefit payments.

Representative payees refer to the person designated by the Social Security Administration who can act as legal payee in behalf of the beneficiary who may be incapacitated to manage funds on their own (e.g. children, people with special needs).

The designated representative payee will have rights identical to that of the beneficiary but it is mandated that the representative payee should act for the benefit and interest of the beneficiary. All funds, therefore, should only be spent or kept for the benefit of the beneficiary.

Should there be any mismanagement on the part of the representative payee, notification should be given to the Social Security Administration for proper action.

Final Thoughts

Whether you are an individual or a business, it is important to always consider who the payee is in order to avoid any confusion on whom you are actually paying.  This will help you come up with a swift and accurate transaction so that no problem will arise in the future.

A payee is a person to whom the payment for the note is to be made. This is the person who will receive cash for note funding.
A payee in a check is the person or entity to whom the check is due. It follows after the phrase "Pay to the order of" in the face of the check.
The payee in the case of an online banking payment is simply the person to whom the payment is due.
Whether you are processing an online payment or writing a check, it is important to provide information of who the payee is in order to be specific as to whom you are issuing a certain payment.
Representative payees refer to the person designated by the Social Security Administration who can act as legal payee in behalf of the beneficiary who may be incapacitated to manage funds on their own (e.g. children, people with special needs).

True Tamplin, BSc, CEPF®

About the Author
True Tamplin, BSc, CEPF®

True Tamplin is a published author, public speaker, CEO of UpDigital, and founder of Finance Strategists.

True is a Certified Educator in Personal Finance (CEPF®), author of The Handy Financial Ratios Guide, a member of the Society for Advancing Business Editing and Writing, contributes to his financial education site, Finance Strategists, and has spoken to various financial communities such as the CFA Institute, as well as university students like his Alma mater, Biola University, where he received a bachelor of science in business and data analytics.

To learn more about True, visit his personal website, view his author profile on Amazon, or check out his speaker profile on the CFA Institute website.