Waddle, an Australian-based invoice finance provider that was founded in 2014, operates by raising funds for businesses secured against unpaid invoices.
The deal will see Xero pay an upfront cash payment of $31 million, rising to $80 million based on product development and revenue milestones.
Subsequent earnout payments are expected to be settled by 50 per cent in ordinary shares in Xero and 50 per cent in cash, with the transaction to be completed by the end of 2020.
Xero chief executive Steve Vamos said the acquisition was part of the accounting software provider’s strategy of moving into the small-business lending market.
“The acquisition of Waddle is an important step in our strategy to help small businesses better manage cash flow and gain access to working capital,” Mr Vamos said.
“Waddle’s lending platform has the potential to enable a wide range of banks, fintechs and other lenders to better support small business financial needs.
“We’re excited about the benefits Waddle can bring to many of our customers and banking partners.”
Waddle, which has been on the Xero ecosystem since 2016, will continue to offer services to its other partner accounting software providers such as MYOB and Intuit QuickBooks.
The lending platform currently has existing agreements with banks and lenders in Australia and the UK.