AvidXchange Stock: A B2B Payments Pure-Play

They say that the difference between an accountant and a lawyer is that the accountant knows they’re boring. It takes a certain type of person to finish a managerial accounting class and conclude that T-accounts are their life’s calling. As uninspiring as accounting might be, it’s a critically important part of every business out there which uses some form of software to balance their books (we use Xero).

When you operate a business, you’ll owe other businesses money. That money owed exists on your balance sheet under “accounts payable,” while the money businesses owe you is called “accounts receivable.” It goes without saying that companies will try to avoid paying debts for as long as possible, and conversely, will prefer to be paid money they’re owed as quickly as possible. (More on this in a bit.) While consumers have moved beyond paper checks, businesses haven’t. Incredibly, paper checks still comprise 42% of all business-tobusiness (B2B) payments in the United States. It’s an opportunity that’s ripe for disruption as business owners look to improve margins during good times and bad.

We estimate the total cost of processing a paper invoice is approximately $19.00 across the paper invoice and paper check payment. We believe that automating these processes reduces that cost by over 60%, while also improving the accuracy of reporting and reconciliation.


Getting rid of paper checks is where a firm called AvidXchange Holdings Inc. (AVDX) sees a $40 billion opportunity.

About AvidXchange Stock

Click for company website

Founded in 2000, Charlotte, North Carolina’s own AvidXchange raised a whopping $1.1 billion in funding before having their initial public offering (IPO) which raised an additional $600 million in funding, giving the company a present-day market cap of $4.4 billion. (Goldman Sachs and J.P. Morgan were the lead underwriters for the initial public offering.) Mastercard is a strategic investor with the two companies partnering back in 2017 when AvidXchange became the execution partner for Mastercard’s launch of The Mastercard B2B Hub in the United States. 

To avoid boring you to tears, we’ll keep the description of AvidXchange’s business model short – AvidXchange offers a platform that allows businesses to pay one another using lots of automation. It’s like robotic process automation for accounting departments with a platform that’s been built for the needs of small and mid-sized businesses (SMBs).

AvidXchange payment solutions target businesses with at least $5 million in annual revenues and/or at least 200 invoices or more than 100 payments per month. Back of the napkin math shows that the savings add up quickly. At 100 payments a month, and assuming the $19 cost mentioned earlier reduced by 60%, the net present value of AvidXchange’s solution is about $684,000 (that’s a perpetuity calculation using a 5% discount rate and 3% growth rate). That value proposition will sell itself during good times and bad. A look at historical revenues shows that AvidXchange had no problems managing through The Rona.

Bar chart showing AvidXchange had no problems managing through The Rona.  Credit: Nanalyze
Credit: Nanalyze

No single customer contributed more than 6% of 2020 revenues for AvidXchange, and their top 10 customers contributed less than 15% of total revenues. It’s not a software-as-aservice (SaaS) pure-play, but instead derives some revenues from software subscriptions and the majority from processing payments.

Credit: AvidXchange

While their solution is industry agnostic, AvidXchange has been selling with direct sales teams focused on industry verticals. With approximately 435,000 middle-market companies in the United States, and based on the average revenues realized by existing AvidXchange customers, the company estimates their total addressable market (TAM) at $20 billion. There’s also an additional $20 billion to be found in supply chain finance using something called invoice factoring.

About Invoice Factoring

Earlier, we talked about how companies like to avoid paying bills until the last minute. Conversely, companies that are owed money want to collect as quickly as possible. This is where financiers created something called invoice factoring (also called commercial paper). Here’s an example of how invoice factoring works.

  • Neil owes Bob $100 and gives Bob 30 days to pay
  • Bob will wait 30 days to pay
  • Sally the financier steps in and pays Neil $97. Neil is fine with receiving 1% less as the bill gets paid immediately. Sally assumes the credit risk of the money owed by Bob.
  • After 30 days have passed, Bob pays Sally $100. Essentially, Sally is receiving an annualized return of +42.58% on her money
  • Everyone wins unless Bob doesn’t pay Sally

That last bullet point is a bigger risk than you might think. While intuitively, invoice factoring seems like a low-risk operation, the implosion of Greensill Capital proves that it’s anything but. In essence, an invoice factoring facilitator is extending loans to businesses. If those businesses go under, it’s bad news. (This is why people should be extremely concerned about claims that cryptocurrency stablecoin Tether is tied to Chinese commercial paper.) AvidXchange makes the following statement about managing their credit risk:

We mitigate this risk through data analytics to determine which invoices are available for advance payment and also monitor the credit quality of suppliers.


We’re MBAs, not accountants, so we had a tough time identifying a single metric that shows losses relating to AvidXchange’s invoice factoring operation aside from their inclusion in “cost of revenues.” We’ll reach out to the company and see if they can add some color here.

If risks are properly managed, commercial paper seems to be a lucrative space. AvidXchange believes supplier invoice finance constitutes a $20 billion additional TAM bringing the total blue ocean opportunity to $40 billion. It’s a small part of an even bigger story.

The B2B Payments Opportunity

Some of the most popular fintech success stories have been in the consumer payments space with companies like Square, PayPal, and Adyen having a combined market cap of $492 billion. The consumer payments space may be a big opportunity, but it’s dwarfed by the B2B payments space. That’s according to an article by Sapphire Ventures, one of AvidXchange’s investors, which talks about how massive the opportunity is.

Global Payments TAM: Consumer vs B2B  Credit:  Sapphire Ventures
Credit: Sapphire Ventures

The size of this opportunity underscores the importance of capturing market share as soon as possible. With an additional $600 million in their coffers, AvidXchange is well placed to continue capturing as much blue ocean TAM as possible before the sharks come circling around. Sapphire, an early investor in Square, believes B2B payments to be “one of the most interesting areas in fintech right now,” and they believe AvidXchange is well positioned to benefit from something economists (people who didn’t have enough personality to be accountants) refer to as “the network effect.”

As more invoice-paying customers onboard their suppliers, the AvidXchange network becomes a familiar standard both to buyers and suppliers, and increases the value to each side of the network. 

Sapphire Ventures

Should You Buy AVDX Stock?

Never take advice from someone who doesn’t have to live with the consequences. In the absence of a competent financial advisor, you should be making your own decisions with conviction. We can only tell you the decisions we make which are suited to our current asset class allocations and small appetite for risk.

Reuters described the AvidXchange IPO as “a lukewarm market debut, mirroring investor concerns of growing volatility in the U.S. capital market.” Where’s all those concerns about volatility as Wall Street piles into cryptocurrencies? Perhaps it’s just that investors don’t find bean-counting business models that compelling, something that bodes well for anyone looking to invest in them.

We really like this stock but have a few concerns. The first surrounds their domestic focus – United States small to medium businesses. In times of economic turmoil, how resilient will this segment be? The Rona was a good test, but the long-term effects of the pandemic may have yet to be fully manifested. If businesses start going under, and AvidXchange is over-exposed to commercial paper, that’s not a good place to be. Let’s hope they’re quite selective over who they extend credit to. We also have some concerns around the S-1 mentioning “a material weakness in our internal control over financial reporting relating to our reconciliation of funds held for customers” that is said to have been reconciled.

To avoid making any knee-jerk reactions here, we’ll need to step back and consider the broader B2B payments thesis. AvidXchange describes the competitive situation as highly competitive, fragmented, and evolving. Making rapid acquisitions (they’ve made several this year already) is characteristic of a company that’s trying to quickly consolidate a fragmented market, but it’s also easy for things to get out of hand if once they start figuring out where all the bodies are buried. We’re liking what we see so far, and Nanalyze Premium subscribers will be the first to know if AvidXchange gets added to our own portfolio of disruptive technology stocks.


It’s no surprise that companies applying technology to accounting fly under the radar as investors seek out more sexy themes. With B2B payments representing a TAM that’s twice that of consumer payments, there’s a huge blue ocean to expand in right now. AvidXchange appears to be emerging as a leader, though we’ll need to vet the competitive situation a bit more to understand where they sit. Even though AvidXchange operates solely in the U.S. right now, there’s still a lot to like about a business that gives retail investors some good pure-play exposure to payment automation solutions.

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2 thoughts on “AvidXchange Stock: A B2B Payments Pure-Play
    1. Hey John,

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