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LSDefine
Simple English definitions for legal terms
payor bank
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A quick definition of payor bank:
A payor bank is a type of bank that is responsible for paying the amount of a negotiable instrument, such as a check or draft. When a payor bank accepts the instrument, it becomes obligated to pay the specified amount. This type of bank is also known as a drawee bank because it is the drawee of a draft. In the check-collection process, any bank handling an item for collection, except for the payor bank or the depository bank, is called a collecting bank.
A more thorough explanation:
Definition: A financial institution that is responsible for paying the amount of a negotiable instrument, such as a check or draft, when it is presented for payment. The payor bank is also known as the drawee bank because it is the bank that is drawn upon to pay the amount of the instrument.
Example: If you write a check to your friend, your friend's bank will deposit the check into their account. The payor bank is the bank where you have your checking account, and it is responsible for paying the amount of the check to your friend's bank.
Explanation: The payor bank is an important part of the check-clearing process because it is the bank that ultimately pays the amount of the check to the recipient. Without payor banks, checks would not be a reliable form of payment because there would be no guarantee that the check would be paid when presented for payment.