Tail spend is “the CFO issue hiding in plain sight.”
So says Donny Hoye, CEO of TailFin, a fintech payments company based in New York City that digitizes and automates the small, infrequent and one-off disbursements also known as tail spend. Hoye is talking his book, of course, but it’s an issue rising in relevance, as he explains in a conversation with CFO Leadership.
New technologies are also making tail spend an easier problem to solve than ever before. “The CFOs winning right now treat tail spend as a data problem, not a procurement problem,” says Hoye.
Why should CFOs care about tail spend now?
Because the macro environment finally caught up to it. For years tail spend was the thing nobody had time to fix. It was small, it was messy, it was somebody else’s problem. That excuse is gone. Margins are compressing, AP teams are leaner and boards are asking finance to defend every line.
Tail spend is typically 20 percent of total spend across thousands of suppliers, but represents 80 percent of the transaction volume, and most CFOs can’t tell you who those suppliers are or what they’re charging. You can’t forecast what you can’t see, and you can’t cut what you can’t categorize. The CFOs winning right now treat tail spend as a data problem, not a procurement problem.
What’s the regulatory exposure regarding escheatment—the backbone of most tail spend—that most finance leaders are underestimating, and why should they care?
Unclaimed property is the sleeper liability on every CFO’s balance sheet, and almost nobody is treating it like one.
State treasurers are sitting on $70 billion in unclaimed property right now, affecting one in seven Americans. Here’s why it should scare you. Enforcement is accelerating. California’s attorney general hit a national healthcare company with a $7.7 million settlement last September for failing to escheat patient overpayments. New York’s attorney general followed in December with a $4.4 million settlement against a gift card company that helped a major retailer dodge escheatment.
We have also seen acquisition deals almost fall apart during diligence as a result of not having a good escheatment compliance program. This usually gets uncovered during the acquisition diligence process, and can have profound effects on the balance sheet.
Tail spend is where this exposure lives. Stale vendor credits, uncashed checks to small suppliers and consumers, duplicate payments nobody reconciled. If you can’t see it, you can’t escheat it and the states are getting paid to find it before you do.
How is tail spend affecting customer experience, and why does that matter to the CFO seat specifically?
There are two very real answers to this question, and the first one is the obvious one. The rest of the payments system has moved to real-time, digital, choice at checkout. If your disbursement experience hasn’t, you’re carrying risk on three fronts. Regulatory exposure on the unclaimed property side. Brand damage every time a customer talks about it. And a balance sheet that’s quietly accumulating obligations you haven’t resolved. None of that shows up in a single line item, which is exactly why it should be on your radar.
The second answer is the one people forget. There’s a real person at the end of every payment, and the way most companies handle refunds and tail spend disbursements makes it genuinely hard for that person to get money they’re owed.
A customer moves, misses the mail and the refund check goes stale. Or you push them a prepaid debit card with an activation fee that eats into the refund, or a breakage fee policy that siphons the whole refund to a third party over time, and half the time they never use it.
The experience isn’t good or beneficial for the customer or the business and the both can be easily improved.
If a CFO wanted to get ahead of this, what should they do Monday morning?
Pull two reports. First, your AP file for the last 12 months and sort it by vendor. Count how many vendors or customers you paid less than $20,000. That number will be uncomfortable, and that’s your tail spend exposure in one view.
Second, pull your outstanding refunds, credits and disbursements to customers. How many are sitting stale? How many went out as paper checks or prepaid cards? How many are approaching dormancy under your state’s escheatment rules?
Then ask your team three questions. Who owns this? What’s our policy? And how would we prove compliance if a state auditor walked in tomorrow? If you can’t answer all three cleanly, you have your business case by lunch.
You don’t need a 12-month transformation. You need visibility into both sides of the equation, the money going out to vendors and the money owed back to customers, and a clear owner for each. The savings, the risk reduction and the customer experience fix all follow once you can see what you’ve been missing.
