Explanation | Differences | Examples

Meaning: What Is a Payee, Payer and Payor?

Payee, payer and payor are parties in an exchange of value, such as a provision of goods or services in exchange for a payment. The party making the payment is called a payer or payor, while a payee is the party receiving the payment.

Payee | Payer | Payor: Sender or Receiver?
Exchange of value Payee Payer (Payor)
Goods, services and other items of value Sender Recipient
Payment Recipient Sender

Who is a Payee?

A payee is an individual, commercial or governmental entity that provides products, services or other items of value to another party (known as a payer or payor) in an exchange transaction and in return receives a payment from the payer (or payor).

Who is a Payer?

A payer, also known as a payor, is a private or public entity that is obliged to pay an invoice or bill, satisfy a claim, settle debt or another financial or legal obligation with another entity (known as a payee).

Who is a Payor?

Payor, or payer, is a party in a financial transaction that makes a payment to another party (known as a payee) in exchange for goods, services, and other items of value or benefit.

4 Differences: Payee vs. Payer vs. Payor

Top 4 Differences Between Payee and Payer (Payor)
Difference Payer (or Payor) Payee
#1 Buyer vs. Seller Buys products, services or other items of value from a payee Sells products, services or other items of value to a payer/payor
#2 Debtor vs. Creditor Debtor who owes to a creditor Creditor who is owed by a debtor
#3 Sender vs. Recipient Sender who makes a payment to a payee Recipient who receives a payment from a payer/payor
#4 Payer vs. Payee Opposite of a payee Opposite of a payer/payor

Payee vs. Payer: What is the difference between a payee and payer?

Payer and payee are the opposite parties to each other in an exchange transaction, where:

  • Payer makes a payment to a payee in exchange for goods, services or other items of value.
  • Payee sells goods, services or other items of value to a payer in exchange for a payment.

Payer vs. Payor: What is the difference between a payer and payor?

The terms payer and payor both have the same meaning and are used interchangeably to refer to one party of an exchange transaction that is responsible for a payment to another party, known as a payee.

The payor variant is less common and usually suited for more formal situations and legal documents.

Payee vs. Payor: What is the difference between a payee and payor?

The party in a financial transaction that makes a payment to another party is called a payor, while a payee is the party receiving the payment from the payor.

8 Examples: Payee, Payer and Payor in Real-Life Scenarios

#1 Personal Transactions

When an individual exchanges money for goods and services, the buyer is referred to as a payer (or payor) and the seller that receives the funds is a payee.
  • John goes to a shopping center to buy a pair of shoes and get a haircut. He charges the shoes on his credit card but pays for the haircut in cash.
  • John purchases a car from his local car dealership and makes the payment online with an bank wire transfer.

In both examples, John is the payer (payor).

The shoe shop, grocery store and car dealership that provide goods and services to John and in return receive his money are referred to as payees.

#2 Business Transactions

When a commercial entity pays for a purchase or provides a payment in a transaction, the business is known as a payer (or payor), while the other recipient party is known as a payee.
  • Manufacturer M sells $10,000 worth of inventory to a long-term business partner Retailer R on credit, where Retailer R has 90 days to pay for the delivery. In this transaction, Retailer R is the payer (payor) and Manufacturer M is the payee.
  • John is a self-employed consultant who provides his consulting advice virtually and accepts payments online. John’s clients are payees because they make electronic payments to John for his services. John is a payee because he is on the recipient end of his clients’ payments.

#3 Bank Transfer

When sending a bank transfer, a payer needs to provide the financial institution with the details of a payee, which is the person or organization that will receive the money from the payer.
  • Company A decides to set up recurring online payments from its bank account to automatically settle its utility bills every month. Company A specifies the utility company’s payment details so that the bank can execute the request. Company A is a payer (payor) that sends the payment, whereas the utility company is a payee on the receiving end of that payment.

Note that sometimes the payer and payee may be the same entity, for example when you transfer funds between your checking and savings accounts, make a deposit into or a withdrawal from your account.

#4 Check

A payer (or payor) is the party that writes and sends a check to a payee, who is the recipient party entitled to cash or deposit the received check.
  • John had some plumbing work done at his house and wrote the plumber a check. The plumber’s business name is specified in the ''Pay to the order of'' line so that the plumber is the only person who can endorse the check and get paid. John is a payer (payor) and the plumber is a payee.

#5 Paycheck

When a business distributes paychecks to its employees and contractors, the business is a payer and the workers are payees.
  • John receives a $2,000 monthly paycheck from its employer, Company A. Company A is the payer and John is a payee.

#6 Promissory Notes & Bonds

With a promissory note, a payer makes a written promise to a payee to pay a predetermined amount of money at a future date.
  • In order to fund a new project, Company A issues a 5-year corporate bond with a coupon rate of 5% and a $1,000 par value. Company B, Company C and Company D buy the bond in different quantities. Over the next 5 years, the three bond holders receive coupon payments from the bond issuer. Company A is a payer of the bond interest payments and Companies B+C+D are referred to as payees.

#7 Healthcare & Insurance

Top 3 examples of payees and payers (payors) in healthcare and insurance:

Payee vs. Payer in Healthcare & Insurance: 3 Examples
Example Payer (or Payor) Payee
1. Coverage Plan Individuals and entities send payments to insurance and healthcare providers to purchase coverage plans. Insurance and healthcare providers receive payments from individuals and entities in exchange for providing them with coverage.
2. Insurance Claim Insurance and healthcare providers pay out approved claims to insured individuals and entities. Insured individuals and entities receive compensation payments for their insurance claims.
3. Patient Care Patients and insurance providers reimburse doctors and medical practices for healthcare services. Doctors and medical practices get paid for patient care by healthcare insurance providers or the patients themselves.

#8 Tax

In taxation, a payee is the government entity that collects tax returns and payments from tax payers (payors). On the other hand, the same government entity suddenly becomes a payer when it issues a refund, while the receiving individual or organization is now a payee.
  • 1. Company A submits returns for its corporation and sales taxes to the tax office, along with a payment for the company’s total self-assessed annual tax liability of $10,000. Company A is a payer (payor) and the tax office is a payee.
  • 2. Next year, Company A receives a $500 refund from the tax office due to an overpayment of tax because Company A’s self-assessment was higher than its actual liability for the previous year. In this case, the tax office is a payer and Company A is a payee.

What Is a Payment?

Payment is a financial transaction where value is traded between two parties, with one party making a payment–a payee–and another party receiving the payment–a payer, also known as a payor.

Let’s take a closer look at how payments work >>

>> Payment

A payment from a payer (or payor) to a payee can take two basic forms:

1.  Financial transaction: Cash, check, bank wire transfer, electronic transfer, debit or credit card, money order, note or bill of exchange, stock shares or any other payment method.

2.  Barter transaction: Exchange of one item for another without using money.

>> Party

The terms payee and payer (payor) can refer to an individual or an entity:

1.  Individual person (e.g., customer, custodian)

2.  Public entity (e.g., government body)

3.  Private entity (e.g., business, trust, trade organization, non-profit)

Interestingly, there may be multiple payees and payers (payors) within one transaction. Conversely, the payee and payer can sometimes be one and the same entity.

>> Value

An exchange of value between a payer (payor) and payee includes:

1.  Transacting with goods and services

2.  Satisfying claims

3.  Fulfilling financial and legal obligations

4.  Trading anything that is of value or benefit to the parties

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