What Is the Difference Between a Payor and a Payer?

By Staff WriterLast Updated May 27, 2020 7:34:26 PM ET
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The terms payor and payer are both nouns that refer to someone who pays a bill or is the responsible party for some type of financial obligation. While the words have the same meaning, payor is a less common variant. Though it’s acceptable to use the two versions interchangeably, most individuals and entities use the more common payer spelling.

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A Closer Examination of a Payor/Payer

In a financial transaction, it’s common for one party to make a payment to the other party in exchange for goods or a service that’s been performed or will be performed. The party who is making the payment or has the legal responsibility to make that payment is the payer/payor. Once the payer/payor makes the payment, they’re permitted to take legal ownership of the goods, or in the case of services rendered, they’ve fulfilled their legal obligation to pay for these services. 


A Look at the Payee


Payee is the term used for the party in a financial transaction who receives the payment. You can identify the payee by checking who the payment is issued to. This information is available on the payee line of a check or in the payee section of the invoice. 


Transactions with a Payer/Payor and a Payee


There are multiple transactions where you will find a payer/payor or payee. Assume that Jack operates a garden store and sells a load of mulch to Sally for $200. In this transaction, Jack is the payee and Sally is the payor/payer. Payee and payor/payer transactions aren’t limited to the selling of goods.


When you go to the doctor, your doctor performs a service in exchange for payment. In this case, you are the payor/payer and your doctor is the payee. It’s possible for the same person or entity to be both a payee and payor/payer in different transactions. Your doctor might accidentally overcharge you; when they refund the overpayment, your doctor is the payor/payer and you’re the payee. 


Recurring transactions also have payers/payors and payees. Each month, your local power company provides your home with electricity. You must pay your power bill to continue receiving service, making you the payor/payer. The power company is the payee because they receive payment for providing electricity. 


Tips for the Payor/Payor to Follow


Here are a few tips that payors/payers can follow when they are making payments. First, make sure that you and the payee agree on the condition of the good or the fulfillment of the service. If you’re supposed to be purchasing a like-new item and the item appears heavily used, you should address this discrepancy before making the payment. Maybe you’re not satisfied with your hair stylist’s work. Voice your displeasure before making your payment.


Depending on the situation, you might make multiple payments to complete the transaction. For example, when you’re having a contractor do work to your home, you might make an initial payment for supplies and then make subsequent payments depending on the progression of the work. Check that you’ve also worked out a clear payment schedule with the payee and that you both agree to the terms of the schedule.


Payment Options for the Payor/Payer


Another detail that the payor/payer must address is how they want to make their payment. You should also confirm that the payee agrees with your preferred payment options. Some of the most common alternatives used by a payor/payer include:


  • Cash
  • Check
  • Debit card
  • Credit card
  • Electronic transfer of funds
  • Wire transfer of funds

Depending on the chosen payment option, there may be fees associated with the transaction. Which party covers the fees is dependant on the specific payment choice. For example, when sending a wire transfer as payment, it’s customary for the payor/payer to pay the required fee to send the payment. However, payees that accept credit and debit cards are responsible for covering the fees associated with accepting cards as payment.