What is 'Drawee'

Drawee is a legal and banking term used to describe the party that has been directed by the depositor to pay a certain sum of money to the person presenting the check or draft. A typical example is if you are cashing a paycheck. The bank that cashes your check is the drawee, your employer who wrote the check is the drawer, and you are the payee.

BREAKING DOWN 'Drawee'

The drawee most often performs the function of an intermediary for a financial transaction. Its purpose is to redirect funds from the payer, or drawer, account to present the funds to the payee. Often, the position of drawee is held by a financial institution that holds the payer funds within a deposit account under its management.

Examples of Payees in the Financial Marketplace

Consumer banks regularly perform this function, removing funds from a depositor’s account to pay the obligation listed on a check. Check-cashing services perform the duties of a drawee but often require a small fee to complete the transaction. Additionally, money order and wire transfer companies that exist outside of the traditional banking format also qualify. The money order functions as the bill of exchange that when provided to the payee is honored by the company that received the funds from the payer.

Drawees in Other Industries

There are instances outside of financial institutions where a party may be considered a drawee, if only in an informal sense. For example, when a customer uses a manufacturer’s coupon as part of a sales transaction, the store accepting the coupon can be seen as the drawee in relation to the customer. The customer has presented a document, created by a company, functioning as the drawer or payer of the debt, that entitles him to a certain amount of money in return for buying the product, causing the customer to perform the role of payee.

While most of these transactions do not require actual money to be handed to the customer, as the money is funded as a discount on the total, it can result in an actual payment depending on various regulations governing the activity.

Once the coupon is turned in to the retailer, the retailer can then claim the funds supported by the company issuing the coupon. This leads to no actual loss on the party of the drawee, just as with financial institutions cashing a check, as the funds are ultimately removed from an account supported by deposits from the issuing company.

RELATED TERMS
  1. Transit Item

    Any check or draft that is issued by an institution other than ...
  2. Check

    A written, dated and signed instrument that contains an unconditional ...
  3. Payee

    The party in an exchange who receives payment. A payee is paid ...
  4. Demand Draft

    A method used by individuals to make transfer payments from one ...
  5. Canceled Check

    A check that has cleared the depositor's account and has been ...
  6. Altered Check

    A check or another negotiable instrument that has been materially ...
Related Articles
  1. Investing

    When Using a Money Order Makes Sense

    Money orders are usually the least expensive way to send "cleared" funds to pay a bill (or traffic ticket). Here's how they work and what to watch out for.
  2. Personal Finance

    Explaining Checking Accounts

    A checking account is an account at a financial institution, usually a bank, that allows for deposits and withdrawals.
  3. Investing

    Money Market Mutual Funds: A Better Savings Account

    An good alternative to the traditional savings account is the money market mutual fund. It's easy, safe and has better returns.
  4. Personal Finance

    Top 5 Reasons Banks Won't Cash Your Check

    Learn the top reasons that a bank won't cash your check, and find out what steps you can take to prevent those scenarios from happening.
  5. Investing

    The Pros & Cons Of Using Coupons For Your Business

    Coupons can drive business to your store – you just need to make sure it's profitable business. Here are strategies that work.
  6. Managing Wealth

    2015's Top Checking Account Promotions

    Open a checking account in 2015 and the bank could give you a cash bonus. Check out these top offers.
  7. Personal Finance

    Understanding Savings Accounts

    A deposit account held at a bank or other financial institution that provides principal security and a modest interest rate.
  8. Investing

    Demystification Of Bank Accounts

    Find out which type of account suits your specific needs.
  9. Personal Finance

    Your First Checking Account

    This owner's manual will show you what to expect from your bank.
  10. Personal Finance

    Cut Your Bank Fees

    Find out how to get the bank to pay you for using their services, not the other way around.
RELATED FAQS
  1. How long does it take a check to clear?

    It usually takes two days for a check to clear, but in some cases it may take longer. Discover how banks treat large deposits ... Read Answer >>
  2. How do you calculate payback period using Excel?

    Understand the various fees that can be assessed on a personal or business checking account, and learn methods to avoid being ... Read Answer >>
  3. What is the difference between a Debit Order and a Standard Order in a bank reconciliation?

    Understand the main differences between debit orders and standard orders a company may utilize and the factors in doing bank ... Read Answer >>
  4. Why would you keep funds in a money market account and not a savings account?

    Read about the differences between money market accounts and savings accounts, and see why a depositor would elect a money ... Read Answer >>
  5. What are the differences between preference shares and bonds?

    Learn what information banks keep on file for their customers, and understand how this information can be used to deny an ... Read Answer >>
  6. What US banks offer free checking accounts?

    Quit wasting money on monthly fees associated with your checking account and get a free checking account from reputable national ... Read Answer >>
Trading Center