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Payee vs payer definition

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Last editedAug 20222 min read

It is important to understand all the differences when it comes to payee vs payer, as the terms represent the two main parties In a financial transaction. The payer is the one making a payment, and the payee is the one receiving the payment.

While the difference might seem simple, it is worth understanding the differences in detail. A simple slip-up when writing these similar-looking terms on an invoice or contract can lead to unfortunate mix-ups down the line.

Here we explain the full meanings and implications of each term, as well as clear up some potential confusion with the spelling.

Payer Definition

During a financial transaction, the person paying money in exchange for a product or service is the payer. A payer may also sometimes be called a payor which means the same thing, and we explain the difference in spelling further below. 

Every financial transaction requires two parties, and the payer is the one that introduces the money into the transaction. Being a payer means you are obligated to give payment to whoever provided you with a product or service. For example, if you call a plumber to fix your pipes, afterwards you must be the payer of money in exchange for the plumber’s pipe-fixing expertise. Buying anything in a shop also makes you a payer, and every taxpayer is a payer when they pay taxes. However, the government becomes the payer when they send out rebates on overpaid taxes.

Other non-retail or service-related payers include anyone settling a debt or paying a fine. They could also compensate someone, which is a legally obligated settlement such as court expenses. A company is a payer every month when it pays out its employees’ wages. Anyone paying interest or a dividend on an investment is also a payer.

Other examples of a payer:

  • shopper buying goods

  • homeowner repaying a mortgage

  • taxpayer paying tax

Payer or Payor?

Both spellings are used in business and both are technically correct. They are often used interchangeably for someone making a payment.

The ‘payer’ spelling is more common in everyday English and has its roots in the Germanic origins of the English language. This Germanic ‘–er’ suffix is often applied to someone performing an action, such as a driver or player. 

The ‘payor’ spelling is usually used in more formal situations such as legal writing, due to its Latin roots which give similar ‘-or’ suffixes to words such as doctor or professor. 

What Is a Payee?

A payee is a person receiving money from another party (the payer) during a financial transaction. A payee is an individual or organisation providing goods or services in exchange for money. They can also provide money now in exchange for more money later, in the case of a loan such as a mortgage.

A payee can be the recipient of payment in a variety of ways and may receive their payment as cash, cheque, bank transfer, direct debit, or electronic payment.

Common examples of payees are retail shops and repair services. The owner of your local pub is a payee every time someone buys a drink or a packet of peanuts there. The plumber who fixes your pipes is a payee after they’ve fixed them and sent the bill. A taxpayer becomes a payee whenever they receive a rebate from the government, who are payees themselves when receiving taxes from citizens.

More examples of a payee:

  • shop selling goods

  • lender receiving a debt repayment

  • employee receiving wages

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