Saturday, 13 Jul 2024
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A Guide to OCR Invoice Processing in AP

When it comes to automating your accounts payable workflow, one common feature you’ll find in AP software systems is OCR invoice processing. But what exactly is OCR and how does it work? In this article, we’ll take a closer look at OCR invoice processing and its benefits.

What is Invoice OCR?

Invoice OCR, short for Optical Character Recognition, is a technology that extracts data from digital documents such as invoices and converts them into searchable and editable text. It’s a valuable tool used in various industries that deal with large amounts of data processing, including accounts payable.

How Does OCR Invoice Processing Work?

OCR invoice processing automates the extraction of invoice data, also known as data capture, by using optical character recognition technology. Here’s a step-by-step breakdown of how it works:

#1) Scanning and Uploading

Invoices and other documents are scanned or uploaded into the OCR software, often received electronically, streamlining the process.

#2) Image Preprocessing

The software enhances the quality of the scanned image by removing noise, correcting rotation, and performing other image enhancement tasks.

#3) Text Recognition

The OCR technology performs optical character recognition on the document, scanning the image for text characters and converting them into machine-readable text. It extracts details like due date, invoice date, line items, invoice total, and description.

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#4) Data Validations and Verifications

The extracted data is validated using predefined rules to ensure accuracy and consistency. In some cases, manual verification may still be required.

#5) Data Export

Once the data is accurately extracted and verified, it’s exported to an accounting or ERP system for further processing and payment.

#6) Archiving

The original invoice, along with the extracted data, is archived for auditing and reference purposes.

OCR Invoice Processing Methods

OCR invoice processing can be achieved using different methods:

  • Templates: Predefined templates are created for known vendors to extract data from consistent invoice formats.
  • Machine Learning: ML algorithms are used to recognize and extract data from invoices without relying on fixed templates, allowing for more adaptability.
  • Cloud-Based: Some companies prefer cloud-based OCR solutions for flexibility and scalability.
  • On-Premise: Other companies choose on-premises OCR tools for compliance and data security reasons.

The Benefits of OCR for Accounts Payable

OCR invoice processing offers several key benefits for accounts payable:

  • Reduced Errors: OCR minimizes the risk of human errors in data entry, ensuring more accurate financial records and payments.
  • Efficiency and Time Savings: Automating data extraction speeds up invoice processing, enabling companies to take advantage of early payment discounts and avoid late payment penalties.
  • Validation: OCR tools include validation rules to check for discrepancies and inconsistencies in extracted data, further reducing errors.
  • Cost Savings: By automating data entry and validation, OCR reduces the need for manual labor, resulting in significant cost savings.
  • Enhanced Compliance: OCR solutions offer robust archiving and document management features, ensuring compliance with regulatory requirements.
  • Improved Vendor Relationships: Prompt invoice processing leads to better vendor relationships, potentially resulting in better payment terms and discounts.
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The Few Limitations of OCR Invoice Processing

While OCR invoice processing is a powerful tool, it has a few limitations. The format of invoices may differ among vendors, presenting a challenge for OCR to intuitively understand the data. Additionally, placing data into the correct fields in an accounts payable system can be a complex task.

How OCR Invoice Processing and Machine Learning Work Together

Machine learning complements OCR by analyzing the structure of an invoice and discerning the data’s meaning. Together, OCR and machine learning automate tasks like matching general ledger codes, transferring invoice information, and sending invoices for approval.

Managed Services for Manual Reviews

Although OCR and machine learning minimize the need for manual intervention, it’s essential to have a platform that addresses one-off situations. Some platforms offer managed services for conducting manual reviews of invoices triggered by alerts.

Global OCR Invoice Processing

Cloud-based OCR solutions enable companies to process data from various languages, expanding their business beyond domestic operations. Cloud-based platforms also allow for easy scalability and remote access to the automated accounts payable system.

Tipalti’s Invoice Management Solution

Tipalti is one of the best accounting systems for OCR invoice processing. It offers a complete integrated solution for accounts payable needs, including invoice management, workflow automation, tax and compliance, payments, integrations, vendor portal, and reporting and analytics.

Conclusion

OCR invoice processing is a transformative technology that empowers accounts payable teams to focus on higher-value tasks. Its automation capabilities offer numerous benefits, such as cost reductions, efficiency gains, improved accuracy, compliance, and better vendor relationships. By implementing OCR and machine learning, companies can create dynamic automated accounts payable systems that pave the way for more competitive and agile financial workflows. To learn more about accounts payable automation, check out The Ultimate Accounts Payable Survival Guide.

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