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Payee vs. Payor: Definition & Explanation

Instructor: Leanne White

Leanne has a master's degree and an independent licensure in chemical dependency counseling. She has extended experience in corrections and post-secondary education.

Have you ever heard the terms 'payee' and 'payor?' This lesson will explore the differences between the two and explain which is which is certain situations.

Payee vs. Payor

When money is transferred, there are two parties involved: the payee and the payor. The payor is the person who pays the money; the payee is the person who receives the money.

The Payor

The payor is the person who pays money (e.g. in exchange for goods or services). Examples include paying for utilities, clothing, groceries, mechanical work, etc. For example, a corporation becomes a payor when writing paychecks or purchasing new equipment. The government is a payor when issuing tax refunds.

Examples

  • 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. The payee is 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 (e.g. 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.

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