Terms, such as Payee, are one of many confusing words in a vast word ocean of personal finance. Keep reading to find out what a Payee is.
You may have seen this term on checks and money orders. By understanding the term you can be better equipped at writing checks and money orders.
What Is A Payee?
The formal definition of a “Payee” is:
Payee: A payee is a person or organization that receives a payment. Payment can be in any form, including cash, a check, a money order, or an electronic transfer of funds. The payee receives the payment from the payer, which is the person or organization that makes the payment. |
Payee Examples
You may have seen the term on:
- 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 for groceries with a check at Target, you’d write “Target” on the Pay to the Order line.
When setting up automatic payment,s the organization that you are paying will be the payee. Providing the bank with this information gives them the ability to make the correct transfer.
- 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
Endorsing checks or money orders is when you sign the back of the top. Endorsing allows the bank to collect the funds on the payee’s behalf. You may consider this as consent to make the transfer.
On some items, there’s a section for “Payee Endorsement,” which shows where the endorsement should go. When there are multiple recipients listed on a check, any of them are 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, that is why it is so important to know the term “Payee”. After endorsing the check the recipient presents it to a financial institution for deposit or cash. Your bank collects funds from the bank that the money ultimately comes from.
Representative Payees for Social Security
Social security benefits payment are made payable to a representative instead of the person actually receiving benefits. This is because the Social Security Administration believes that an individual (the beneficiary) is not able to manage funds on their own.
A representative is similar to a standard payee: That person can negotiate the check, but representatives must manage money for the benefit of the actual beneficiary.
The funds must be spent on things that help the beneficiary. A representative exists to help a Social Security beneficiary. They take the burden of money management off the beneficiary’s plate.
Author’s Verdict
Terms, such as Payee, are one of many confusing terms in a vast word ocean of personal finance. By knowing these terms you are able to understand financial language and be a more responsible consumer.
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