The Definition of a Payee vs. a Payer

In financial transactions, one party pays and another party receives the payment. The types of transactions that involve both parties are as varied as purchases of goods and services, and monthly utility bill payments.

The Payer

The party paying money for goods or services is the payer. This includes any person or corporation paying for a purchase or one providing the payment in a transaction. Examples of payer transactions include a person who purchases a car, buys groceries or pays an electric bill. A corporation is the payer when employees are issued paychecks or new equipment is being purchased. Government entities are also payers when they issue tax refunds to people or corporations.

The Payee

The payee is the party receiving a payment for selling a product, providing a service or receipt of a tax return. Payees may also be individuals, businesses or governments. A person who receives a check for employment or a tax refund is the payee. Checks usually identify the payee as the name listed on the line next to '' Pay to the order of.'' However, when a person or corporation writes a check to pay taxes, the receiving government entity is the payee.

Identifying Payers and Payees

Identifying the payer and the payee in a transaction serves a practical purpose as well. For example, specifying the payee on a check by name provides assurance that the check can only be cashed or deposited by that person. Identifying the payer in financial transactions is also necessary to ensure that accounts are credited properly and that ownership after a purchase is assumed by the buyer. For example, when a car is sold between private parties, the certificate of title is transferred to the payer to release the payee from any further liability for the vehicle.