Payee

What is a payee?

A payee is the person, business, or organisation that receives a payment. The payment can be made by cash, card, bank transfer, cheque, digital wallet, or another payment method.

Every payment involves at least two parties: the payer, who sends the money, and the payee, who receives it. In a typical purchase, the customer is the payer, and the merchant is the payee. In other cases, the payee can be a person, service provider, government agency, lender, contractor, or any other party entitled to receive funds.

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Examples of a payee

The payee is the one with legal rights to payment. Depending on the type of value exchange, businesses, individuals, and government entities may all be payees. For example, if you purchase a subscription to a service, you are the payer, and the service provider is the payee.

Let's look at other common situations involving payees.

• In the banking sector, the payee is someone who has an active account to which the payer can transfer funds.
• In the case of payment by promissory note, the payee is the party receiving payment. Accordingly, the party that undertakes to pay the other party a predetermined amount is the payer.
• In payment processing, a payee can also be a merchant receiving a card payment, a marketplace seller receiving a payout, a supplier receiving a bank transfer, or a customer receiving a refund.
• When it comes to bond coupon payments, the payee is the party getting the coupon, and the payer is the bond issuer.

Payee endorsement

In cheque and money order payments, payee endorsement is the payee’s signature or stamp authorising the bank to process the payment. The endorsement authorises the bank to receive funds on the payee's behalf. For several payees, the check must be endorsed by all parties. Once the check is endorsed, the payee presents it to a bank for cashing.

Payee vs payer

The payee is the party that receives money. The payer is the party that sends money. For example, when a customer buys a product online, the customer is the payer, and the merchant is the payee. When a business sends money to a supplier, the business is the payer, and the supplier is the payee.

A payer-payee transaction: how does it look?

The payment flow depends on the payment method, such as card payment, bank transfer, cheque, digital wallet, crypto wallet, or ACH transfer. In general, the process includes three basic steps:

• The payer enters or confirms the payee’s details, such as the recipient’s name, account details, wallet address, payment link, or payee reference.
• The payment is authorised and processed through the relevant payment system, bank, wallet, card network, or payment provider.
• The payee receives the funds according to the payment method, processing time, and settlement rules.

The payer may receive a receipt, a confirmation message, a bank statement record, or a transaction reference as proof of payment.

How to identify a payee?

There are situations in which the payer needs to ensure that the funds go to the correct personal or business bank account. In this case, they can use the Confirmation of Payee – a name-checking service that identifies the payee by the provided account details. In the UK, Confirmation of Payee is a name-checking service used by many banks and payment service providers to help reduce fraud and misdirected payments.

How does it work?

When you initiate a payment or update the existing one, enter the sort code, account number and the full name of the account you send money to. The service checks whether the account name matches the account number and sort code, and you get one of the following responses:

• It's a match
• It's a close match
• It's not a match
• Unable to check the account

Once you know the response, you decide whether to proceed with the payment. If you receive a response that you are not satisfied with, you can contact the payee for further details.

By identifying the payee with checking services, you can protect yourself from fraudsters and avoid errors when sending funds.

What is a representative payee?

A representative payee⁠ is a person or organisation authorised to receive and manage benefit payments on behalf of someone who cannot manage them independently. This term is commonly used in the context of social security or public benefit payments.

Being a representative payee is associated with certain requirements and obligations. Thus, representative payees are responsible for using benefits to meet the beneficiary's needs and for saving any benefits not needed to do so. The payee must also keep records of expenses. When Social Security requests a report, a payee must provide them with an accounting of how they used or saved the benefits.