Who Is Drawer And Drawee

What is a Drawee?

Common in bill or check transactions, a drawee can be described as the entity or person upon whom a bill or check is drawn. The drawee is the entity or person to whom a bill is addressed and is given instructions to pay. In most cases, when a check How to Write a Check Even though digital payments are continually gaining more market share, it's still important to know how to write a check. This guide shows you step by step (bill of exchange) is being drawn, the party said to be the drawee is normally a banker.

Drawee

The individual or entity who draws up the bill is known as the drawer, and the person or entity to whom the bill is favorably drawn is known as the payee. They are the receiver of the payment or to whom the bill is payable.

Summary

The drawee is the entity or person to whom a bill is addressed and is given instructions to pay.
In most cases, when a check (bill of exchange) is being drawn, the party said to be the drawee is normally a banker.
In a financial transaction, a drawee typically serves as an intermediary. The primary purpose of the drawee is to channel and direct funds from a payer's account – also known as a drawer or depositor – to the account of the payee – the receiver of the funds or the natural person to whom the funds are payable.

Functions of a Drawee

In a financial transaction, a drawee typically serves as an intermediary. The primary purpose of the drawee is to channel and direct funds from a payer's account (also known as a drawer or depositor) to the account of the payee (the receiver of the funds or the natural person to whom the funds are payable).

In most instances, the drawee is a financial institution. In such a situation, the drawee holds the funds from the payer in an account that it manages. The account is often a deposit account. It is a common function for consumer and/or commercial banks Commercial Bank A commercial bank is a financial institution that grants loans, accepts deposits, and offers basic financial products such as savings accounts. . The consumer bank takes funds from the account of the payer or depositor to meet the financial obligation set forth in accordance with the information provided on a check.

Apart from banks, other entities that can serve as a drawee can be wire transfer and money order Money Order A money order is a guaranteed form of payment for a specified amount that two parties can use as a form of payment in exchange for a given companies and companies that provide check-cashing services. It is important to note that the entities may require processing fees to facilitate and process the transaction to completion. Money orders typically serve as a bill of exchange (the drawee role). In such a transaction, the bill of exchange is presented to the payee and is honored by the entity that receives the funds from the depositor or payer.

Drawee - Sample Bill of Exchange

Understanding How the Process Works

To depict and highlight the role and function of a drawer, consider the following example:

Mary works at Company ABC. The company pays its employees on the 25^th of each month. The employees (including Mary) obtain their salaries through a check. Assuming it is the 25^th of January today, Mary receives her salary check and presents it to her bank to cash the check. Mary's bank will have the funds directed from the bank account of the company into Mary's account, in accordance with the figure stipulated on the check. Hence, the bank deducts the funds from Company ABC's account and pay the funds directly into Mary's account.

In this scenario, Company ABC has instructed the bank to draw funds from its account and have those funds sent to Mary's account. The bank is the drawee in this setting, company ABC is the drawer, and Mary is the Payee.

Henceforth, the owner of the account from which the funds are to be drawn is referred to as the drawer, the bank or institution that is facilitating the channeling of the funds from the drawer's account is known as the drawee, and the person to whom the funds are sent to is the payee.

Other Examples of a Drawee

It is important to note that a drawee is not always a financial or banking institution. A common example is the use of coupons. Suppose there is a manufacturer who distributes coupons to individuals or entities. The coupon holder decides to make use of the coupon as part of a transaction. The store or shop that receives and accepts the coupon can be regarded as the drawee.

Although the transaction does not necessarily require a physical channeling of funds due to the coupon acting as a discount voucher – i.e., no cash is handed directly to the customer or the coupon is not cashed as would be the case with a check – it may still result in actual payment. It would depend on the regulations that govern the activity.

More Resources

CFI offers the Commercial Banking & Credit Analyst (CBCA)™ Program Page - CBCA Get CFI's CBCA™ certification and become a Commercial Banking & Credit Analyst. Enroll and advance your career with our certification programs and courses. certification program for those looking to take their careers to the next level. To keep learning and developing your knowledge base, please explore the additional relevant resources below:

Checking Accounts vs Savings Accounts Checking Accounts vs Savings Accounts A bank client can choose to open checking accounts vs savings accounts depending on several factors, such as purpose, ease of access, or other attributes. A checking account is a type of bank account that is used for everyday transactions. It is the most basic account that banks, credit unions, and small lenders offer.
Bill of Lading Negotiable Bill of Lading A negotiable bill of lading is a type of bill of lading. Lading is the action of loading a ship or vessel with cargo. A negotiable bill of lading is
Deposit Deposit Deposit is a term used to denote the money kept or held in any bank account, especially to accumulate interest. The fund used as a security
Financial Intermediary Financial Intermediary A financial intermediary refers to an institution that acts as a middleman between two parties in order to facilitate a financial transaction. The institutions that are commonly referred to as financial intermediaries include commercial banks, investment banks, mutual funds, and pension funds.