The most common example of a drawee is a bank. They act as a drawee each time you deposit a check or receive a bill of exchange.
How Does a Drawee Work?
The drawee is typically an intermediary or go-between during a financial transaction. In other words, they’re the ones directing funds from the payor’s account to the payee’s account. In most situations, the drawee is whichever bank the payor (i.e., the payer) uses. This bank is responsible for removing money from the payor’s account to pay whichever checks the account holder issued. For example, if your friend writes you a check from her bank account at Wells Fargo, Wells Fargo is the drawee. If your employer banks with Chase, then Chase is the drawee of your paycheck. Anytime you facilitate an outgoing transaction—whether it be writing a check, paying employees, or using online bill pay—your bank is acting as the drawee because they’re the ones responsible for moving money from your account to the payee’s account.
Types of Drawees
A drawee doesn’t always have to be a bank. It can also be an independent company that facilitates wire transfers, money orders, or check cashing. However, it should be noted that for wire transfers themselves, there is no drawee because the wires are pushed through from institution to institution rather than drawn from a bank with a draw request. For example, suppose you use Western Union to wire money to a relative overseas. Western Union and its bank would be the drawee in practice—remember, they push the wire through—because they facilitate the transaction. You would be considered the “drawer” (i.e., the person who initiated the wire, usually referred to as the payor), and your relative would be the payee (i.e., the person getting paid the money). If you want to get really out of the box, retail stores that accept coupons can also be an example of a drawee. For example, let’s say you get a coupon in the mail for $2 off Tide. You go to your local grocery store and hand them the coupon at checkout. In this case, the manufacturer is the payor because it issued the coupon. You are the payee because you’re receiving the discount. And the retail store is the drawee because they’re legally obligated to honor the coupon. Now let’s say Tide was on sale for $1.99, and your coupon was for $2, resulting in the grocery store owing you 1 cent. The store would give you a penny, then get reimbursed by the manufacturer (i.e., the payor). The store wouldn’t lose any actual money. They’d simply facilitate the transaction — the same as a bank would if you were cashing a check.
Payor vs. Drawee
The drawee is the party that channels the money from the payor’s account into the payee’s account. They don’t actually pay or receive any money. They simply facilitate the transaction. The drawee is usually the payor’s bank.
