Definition: A note payee, or payee of the note, is the person or entity whom the note is payable. In other words, a payee is the person who the note is made to. I remember it like this. The payee is the person who gets paid. The person or business receiving the cash is the payee.
What Does Note Payee Mean?
Promissory notes, including notes payable and notes receivable, are written promises to pay an amount of money at a future date. Notes have a little different terminology than checks. Notes are “made” and not written. Thus, the person making the note is considered the maker of the note and not the payer. It might make more sense with an example.
Example
Bob’s Fishing Co. is starting to get into the tackle manufacturing business but doesn’t have any equipment or machines. He needs to borrow $100,000 from a bank in order to purchase enough machines to start manufacturing lures and bobbers, but no bank will lend him the money. Bob’s friend, Steve, agrees to loan him the money if Bob signs a promissory note.
Bob makes a note payable to Steve for $100,000 due in five year plus interest in exchange for the $100,000 loan. Bob is the maker of the note and Steve is the payee of the note. Since the note is payable to Steve, he will receive the money (get paid). Therefore, he is the payee.
Don’t get the original loan confuse you. Bob received money from Steve in exchange for the note. Bob is not actually receiving money from the note. Steve is the one who gets paid from the note.
