Finances are often made up of a vast array of confusing jargon. The term Payee is just one of those equally puzzling words in the world of personal finance. However, understanding it is fairly simple.
So what exactly does payee mean? In the broadest term, a payee is a person or organization which receives a payment. The payment itself can be in any form. Cash, check, money order or even electronic transfer of funds can all be categorized under forms of payment. The payee then receives the payment from the payer, which is the person or organization that makes the payment.
Payee Examples
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.
For Paper Checks, the payee’s name would go on the line which says “PAY TO THE ORDER OF”. That person then becomes the only one authorized to deposit, cash or potentially sign it over to someone else.
- Example: If you are buying a car with a check, you’d put the dealership name on the Pay to the Order of line.
In the case of online bill pay, the payee would be if you are setting up online
Online bill pay, on the other hand, would be the business you want to pay (your internet provider, for example). Providing the payee information allows the bank to know who receives the money as well as where to send the check.
- Example: Paying your service provider for the monthly bill payment (energy, phone, insurance, etc.)
Payee Endorsements
Whenever someone uses a check or money order, the payee typically must endorse the check by signing the back of the check. Endorsing allows the bank to collect funds on the payee’s behalf. Sometimes, there will be a section stating “Payee Endorsement”, showing you where the endorsement should go.
However, the rules and logistics of it all depend on state law and the language on the check. In cases with more than one payee, any of the individuals can endorse the check, or they might all have to endorse the check.
After the check has been endorsed, the payee can present it to a bank or credit union to deposit. From there on out, the financial institution handles the processing of the check.
Representative Payees for Social Security
In some cases, social security benefits payment is 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.
When this happens, a representative payee steps in. This person’s role is to negotiate the check. However, the representative payee must manage for the benefit of the actual beneficiary. Consequently, 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.
Conclusion
When it comes to personal finance and financial terms, it can often become confusing. 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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