The banks involved in collecting money each have a different designation, demonstrating the role of that bank with regard to the overall process. These designations fluctuate depending upon the exact nature of each collection, of which bank holds the bank account from which money is being drawn, and so on.
The depository bank is the bank into which a given negotiable instrument is deposited. This can also be understood as the first bank to accept the negotiable instrument, besides the payor bank. This is usually the bank doing the collection, as it intends to receive payment from another bank account.
Because of the nature of a check, the depository bank to whom the check is given for final payment is actually the one to whom a debt is owed by the bank tied to the drawer’s bank account. Thus, the depository bank is usually the collecting bank. Being the collecting bank means that the depository bank holds most responsibility for ensuring payment to the bank account. Also, the depository bank would hold most warranties for presentment or transaction and would be liable if there was anything false about the check.
The payor bank is essentially another way of defining the drawee. Normally in a draft, there are three parties: the drawer, the drawee, and the payee. The payee is the recipient of the draft, while the drawer is the individual who originally wrote the draft, and the drawee is the party to whom the drawer was giving an order to pay the payee.
In a check the drawee is always a bank. Because the drawee is the actual party which issues payment to the payee, then the drawee could also be known as the payor. In the above example, the bank making a payment to the depository bank from one of its own accounts would be described as the payor because it is paying the depository bank.
The payor does not hold much liability for the transaction, as it is the depository collecting bank which is making warranties regarding the check in question. The payor would hold liability, however, to the bank account from which it draws money and the drawer who is connected to that bank account.
An intermediary bank is any bank which is acting as an intermediary between two parties. This would in theory refer to the role that most banks play, but in actuality, a bank is only referred to as an intermediary bank in a situation in which that bank does not play a direct role within the transaction.
Intermediary banks are most often those banks which help facilitate transactions in places where another bank is not present. For example, if one were to make a payment from one’s bank account to a vendor in a different country, then the bank that holds that bank account might not be present in that country and would need the help of an intermediary bank to transfer the funds. As a result, an intermediary bank may be the one that actual transfers the funds to the collecting bank after the payor bank transferred them to the intermediary bank.
