AvidXchange buying Core Associates to build digital payments for construction industry

A digital payments migration could help rebuild illiquid construction companies unable to afford delays from legacy processing.

"The construction industry has been challenged by the pace of evolution and is still dominated by invoice and check payments," said Michael Praeger, CEO and co-founder of AvidXchange.

AvidXchange on Monday agreed to acquire Core Associates, which provides TimberScan and related payment services and accounting integrations for the construction industry. Financial terms of the deal were not disclosed. Core Associates will mostly retain its brand, adding "an AvidXchange company" to the end of its name.

Core Associates clients will have access to AvidXchange's AvidPay network, which has more than 680,000 suppliers. And construction businesses will be able to offer multiple electronic payment options for suppliers. AvidXchange processes about $140 billion in transactions per year, and Core Associates has about 30,000 users.

Businesses on both ends of the transaction can also eliminate paper checks through AvidXchange and Core Associates' combined technology stacks. The faster processing is designed to encourage incentives for early payment and access to funds, both of which can improve cash flow for businesses.

The pandemic has presented several challenges for the construction industry. A combination of safety checks and protocols has increased expense, while the industry grapples with illness and staffing shortfalls due to the pandemic, according to the American Bar Association. The underlying economic impact has hurt construction businesses, which were already struggling due to thin margins, according to the bar association.

Construction companies are additionally challenged to improve the recording of expenses and a project's progress in accounting systems, leading companies in that industry to prefer accounting systems that specialize in construction, according to Praeger. Core Associates supports Sage CRE, Sage 100 Contractor, Acumatica and Sage Intacct Construction, which are all construction accounting systems.

"There is a general horizontal market which executes B2B payments in a similar way, while others such as construction have nuances in how bills get managed and processed. Having a specific partnership in those industries is a great advantage," Praeger said, adding AvidXchange has made similar industry-specific accounting program acquisitions, such as buying Strongroom in 2015 to reach homeowners association clients; and BankTel in 2019 to offer accounts payable technology to financial services companies.

AvidXchange's investors include Mastercard, and the card brand's backing has helped AvidXchange add several business lines and payment technologies over the past two years. The Charlotte, N.C.-based AvidXchange added support for health care payments in 2019, just before the pandemic upended health care payment processing for both hospitals and primary care providers.

As the pandemic wore on, AvidXchange boosted its capability to process payments remotely, both for its own business and its clients, improving onboarding and consulting for firms that rapidly moved accounts payable staff out of their offices. More recently, Mastercard and other existing investors poured a fresh $128 million into AvidXchange, which is reportedly valued at more than $2 billion, according to Bloomberg.

Supply chain and other B2B transactions have traditionally clung to checks and other paper-heavy payment processes, though the pandemic has sparked some much needed automation. Payment companies leaned into the trend, with firms such as Ingenico adding new digital options for international business payments.

Other innovation has come from London fintech Vitesse, which added back-office tools for cross-border B2B transactions. And Mastercard accelerated its API for B2B payments, adding a network of payment companies to add scale for supply chains and other business transactions. AvidXchange is part of the card brand's network, along with Global Payments, Fiserv, Veem, VersaPay and YayPay.

Writing for PaymentsSource, Bill Wardell, vice president of strategy and business development for Bottomline Technologies, said the crisis has exposed more businesses to the negative impact of paper-based processing. "Faster electronic payment methods like virtual cards, ACH and new models like real-time payments can create a better balance for all parties in the payment transaction," Wardell wrote.

As 2021 begins, there are more opportunities for technology developers to add automation for payments integrated with back- office operations. There's a lack of harmonization of rules for receivables, for example, said Enrico Camerinelli, a senior analyst at Aite Group, adding that makes it harder to integrate with payment systems. And the low uptake of IT infrastructure and digital invoicing remains a problem, he said, adding there's a lack of technical integration of systems and interoperability between platforms and different countries.

"The lack of harmonization of rules in receivables will force operators to comply with multiple sets of rules across states and countries," Camerinelli said. "And highly inefficient onboarding requirements will lead buyers to invite only their larger suppliers to the programs."