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What is a payor? What is a payee? What is the difference between the two? Know the concept of payor and payee through interesting explanation and examples.Updated: 11/21/2023
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Payee vs. Payor: Activities
Payor or Payee
Below are several sentences describing different monetary circ*mstances. Determine whether the person, company, or entity listed in bold in each circ*mstance is the payor or the payee. Provide a brief explanation (no more than 1-2 sentences) explaining your answer.
- Richard finds a parking violation ticket wedged under the windshield wipers on his car. The ticket will require him to pay $75 for parking illegally.
- The tire company charges each customer who wants their tires to be rotated $50.
- Francis has just completed her tax returns. She receives a message from her online tax filing provider indicating that she owes the federal government $98.04 in additional taxes.
- Elmer likes to feed the birds in his backyard. On average, he buys $35 worth of bird seed each month to keep his bird feeders full.
Selected Answers
- Richard is the payor: Richard is required to pay a fine for his parking violation; he will not be paid.
- The tire company is the payee: the tire company will be paid by the customer to rotate a car's tires.
Fill-in-the-Blanks
- Each sentence below describes an attribute or provides an example of either a payor or a payee. In each sentence, fill-in-the-blank with either payor or payee based on the sentence's information.
- The _____ gives his or her money away to purchase something.
- The _____ receives money for a good or service provided.
- PayPal, cash, check, and other methods are used to make sure that the _____ receives his or her money.
- Employers distributing monthly paychecks are the _____ of their employees.
Selected Answers
- The payor gives his or her money away to purchase something.
- The payee receives money for a good or service provided.
Who is the payee and payor?
In a financial transaction, a payor is the consumer. They pay for a specific good or service provided to them by the payee. The payee is the person, commercial business, or government that receives payment for their services. Sometimes, the payor and the payee may be the same person, especially in the case of depositing, withdrawing, or transferring money between ones' own bank accounts.
Who is the payor of a check?
The payor of a check is the person who writes the check. They are the party paying for a good or service. The payee is the recipient of the check or funds.
What is a payee example?
A payee is the party within a financial transaction that receives money in exchange for a good or service they provide. A grocery store, an auto shop, a lawyer, and a travel agent are all examples of payees because they provide a valuable service to their customers.
Who is the payee in a fund transfer?
In a fund transfer, the payee is the recipient of cash, a debt, or an obligation by the consumer. The consumer is also known as the payor.
Table of Contents
- What is a Payor?
- What is a Payee?
- Payor vs. Payee
- Examples of Payors and Payees
- Lesson Summary
What is a payor? In a financial transaction, the person paying money in exchange for an item, product, or service is known as the payor. Payors may also be called payers, and they are obligated to send dues or currency to the person providing a specific good or service. For instance, a payor may have to pay a bill or invoice, settle a debt or legal obligation, or settle a claim from the party they are being provided services. The term can also refer to paying interest or a dividend on an investment.
Any financial exchange is made up of two parties, one of them being the payor. In everyday life, purchasing groceries and clothing, paying for a lawyer, paying taxes, and buying an ice cream cone all consist of one party spending money in some regard. The government can also be a payor when it issues citizens a refund on taxes.
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Table of Contents
- What is a Payor?
- What is a Payee?
- Payor vs. Payee
- Examples of Payors and Payees
- Lesson Summary
What is a payee? A payee is defined as the person who receives money from another party in a financial exchange. Payees are the opposite of payors and usually consist of the person or group that provides a certain product or service to a customer. They are the recipient of cash, checks, debts, or other financial payment options or obligations from the payor. Commercial businesses, people, and the government may all be payees in certain types of transactions.
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Who is the payee on a check? When a payor buys a product or service, the payee is obligated to provide the desired item to the customer. The bill of exchange , which is essentially a receipt, usually provides the name of the payee so that the payor may send the rendered funds to the appropriate custodian or organization. On a check, the pay to the order of section would list the payee as well. Check endorsem*nts are signed only by the payee so that they are the sole recipient of the funds.
A grocery store, an auto shop, a travel agency, and a doctor's office are all places that contain payees. Each provides a unique good or service that is desired by customers, the payors. The government can also be a payee because when citizens file their taxes, the government is the recipient of the transaction.
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Payors and payees are the two parties involved in a financial exchange for products or services. They are opposite terms, but both important parts of a transaction. The following chart may assist in clarifying the relationship and differences between the two terms.
| Payor/Payer | Payee |
|---|---|
| The party who owes a debt or obligaton to the payee | The party entitled to payment for a good or service |
| Buys a product or service from another party | Sells a valuable product or service to customers |
| Sends payment to the payee | Receives payment from the payor |
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Payors and payees are part of every financial transaction and can be found in everyday life. The following examples of payors and payees show the relationship of both parties within an exchange and how they are defined.
- Ryan's car breaks down on the highway. He is 20 miles from the closest auto repair shop, so he needs to hire a tow truck to bring his car to the mechanic. The tow truck driver is providing a valuable service to Ryan, being the transport of his disabled vehicle to a place where it can get repaired. Ryan is the payor in this situation because he owes the tow driver money for a service. The tow truck driver is the payee. Likewise, when Ryan's car is fixed, he is the payor of the services provided to repair his car and the auto shop is the payee.
- Brenda goes to the grocery store each week to buy food and other basic household necessities. After she cashes out, she gives the cashier the required amount of money. Brenda, the payor, is paying for the items that she purchased and the cashier who is representing the store is the payee.
- Laura recently got into a car accident and was found to be the liable party. The judge ordered that she pay the plaintiff the balance of damages not covered by insurance. Laura is the payor of the debt to the plaintiff, who is the payee in this scenario. They are receiving money as compensation for an injury given in the accident.
- For his birthday, Sheila gifted her grandson a check for $100. Sheila is the payor because she is giving money to the other member of the transaction, her grandson. On a check, Sheila would write her grandson's name in the pay to the order of field to distinguish that only her grandson many cash the check. This ensures that when he endorses the check, he will be the only person to receive money out of the exchange. Sheila's grandson is the payee.
- Danny owes the government $2,000 in taxes. He writes a check to the government as the payor of this financial exchange. The government is the payee because they will receive the funds.
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Payors and payees may be the same individual in some instances. Transferring funds between bank accounts owned by the same person (making deposits or withdrawals) and writing checks to oneself are two situations where both parties of the exchange are actually the same person. For example:
- Cameron notices that one of his bank accounts has less than $500 in it, while another has $20,000. He decides to move $5,000 from his larger bank account to the smaller one. Cameron is the payor in this situation because he is sending money somewhere. He is also the payee because another one of his bank accounts is where the funds will be received.
- Maureen has bank accounts with two separate institutions. She wants to transfer money between her accounts, but she cannot do so between different banks. Maureen writes herself a check for the desired transfer amount at one bank, then cashes the check at the other bank. Maureen is the payor and payee of this scenario because she is sending and receiving funds between her own bank accounts, even if they are in separate institutions.
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There are two parties in every financial exchange or transaction. A payor is the person who is obligated to pay for an item, good, or service being provided to them. The payee of the transaction is the person, commercial business, or government receiving money or debts from the payor. Payments can be made in cash, by check, or through another financial payment option. The bill of exchange, which is essentially a receipt, will provide the name of the payee so that the appropriate party may be paid. A transaction is usually made up of separate payors and payees, but they can be the same person in some cases, such as during a cash transfer.
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Video Transcript
Payee vs. Payor
When money is transferred, there are two parties involved: the payee and the payor. Let's take a look at the differences between these two terms and explore examples of each.
The Payor
The payor is a person who pays money in exchange for goods or services. Examples include paying for utilities, clothing, groceries, and mechanical work. For example, a corporation becomes a payor when writing paychecks or purchasing new equipment. The government is a payor when issuing tax refunds.
Here are some examples of situations involving a payor:
- Erica needs electrical work done at her house. She calls an electrician, and after he is finished working, she writes him a check. She is the payor.
- Holli writes a check to the cable company for her television and Internet services. She is the payor.
- Jake goes to the local car dealership and purchases a new car. He is the payor.
- Ben owes the government $5,000 in back taxes. He writes a check to the government. He is the payor.
- Molly receives a paycheck from her employer. Her employer is the payor.
- Elizabeth is a self-employed painter. She sells her work online. When someone purchases her art, that person is the payor.
The Payee
The payee is the person who receives money from the payor, usually the one who is selling a product or providing services. People, businesses, and the government can all be payees.
The payee is paid in cash, check, or other forms of payment, such as PayPal. The name of the payee is often included on the form of payment so that the right person is paid. On a check, the payee is the person who is listed on the line labeled ''Pay to the order of.'' The payee is the person who endorses the check before cashing. This ensures that the payee is the only person being paid.
Now let's take a look at situations involving a payee:
- Erica needs electrical work done at her house. She calls an electrician, and after he is finished working, she writes him a check. The electrician is the payee.
- Holli writes a check to the cable company for her television and Internet services. The cable company is the payee.
- Jake goes to the local car dealership and purchases a new car. The car dealership is the payee.
- Ben owes the government $5,000 in back taxes. He writes a check to the government. The government is the payee.
- Molly receives a check from her employer. She is the payee.
- Elizabeth is a self-employed painter. She sells her work online. When someone purchases her art, she is the payee.
There are situations when the payee and payor are the same person. These situations include transferring funds from one account to another when both owned by the same person) making bank deposits or withdrawals, or writing a check to yourself.
Lesson Summary
When money is transferred between two parties for the exchange of goods or services, the two parties involved are the payee and payor. The payee is the person who receives money from the payor. The payor is the person who pays the money to the payee. In some situations, such as when writing a check to yourself, the payee and payor can be the same person.
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