The Power of OCR Software in Accounts Payable

Blog - 16 May 2019

What is OCR Software?

OCR (Optical Character Recognition) software is an acronym that has become widely used within the world of finance in recent times, but what exactly is it? OCR Software can be commonly found within accounts payable solutions.


How OCR Software Works

OCR software allows AP teams to read/scan an invoice and convert relevant data into metadata which can be used to populate fields in a database and create an electronic invoice, ready to be processed. But, how does it actually work?

Identifying Keywords and Values

OCR can be trained to find the position of certain data points on an invoice through the use of intelligent filters. These filters work by searching for certain characters (usually letters) and then searching for commonly used keywords in that proximity. For example, a series of numbers located beside the keyword ‘Invoice Number’ would be captured as the invoice number.

You can see from the example below, that OCR software searched the invoice for the term ‘ORDER NUMBER’ in the green box and captures the number below it. The frame to the right-hand side of the page shows that vale being added to a field in a database which can be used for invoice matching, in turn decreasing invoice processing times and costs.


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Progressive machine learning

Once the correct data has been captured from one invoice, through machine learning, the technology will be able to replicate the data capture for similar invoices moving forward. OCR also has the ability to learn from its own actions. If the technology makes a mistake and is manually corrected, then the technology will learn and develop itself for the future. On an invoice, the data that can be extracted would include line item data, vendor, date and invoice number.


OCR Software within an Accounts Payable Solution

According to a recent report by Levvel, 23% of AP staff listed ‘manual data entry’ as their top challenge within their AP process.


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Optical character recognition has an important role to play in making major improvements in this area, however, the true benefits are realized when it is part of a complete accounts payable system.

For example, when OCR software scans and extracts data from an invoice, it will only populate fields in a database. When part of a holistic accounts payable solution, data extraction tools use programmed AI and machine learning to interpret the information and take relevant action. In many instances, organizations leverage Robotic Process Automation (RPA) to route an invoice for matching with a Purchase Order (PO) and a Goods Receipt Note (GRN) to eventually send for approval and payments.

By teaming up with RPA to take on the repetitive, mundane tasks of matching and routing, OCR software plays a major part in increasing the volume of invoices that can be handled while also significantly reducing the time taken to process an invoice and number of errors that occur along the way.

OCR is clearly a key component of an automated accounts payable process and has a number of benefits on the overall process.


The Benefits of OCR software in Accounts Payable


One thing that optical character recognition brings to the procure-to-pay process, in particular, is flexibility. When combined with AI and machine learning, it can be trained to handle a wide range of fonts, including handwriting, as well as handle many different forms of information, such as pictures and tables. Such varying formats can often be particularly time-consuming and overwhelming when done so manually.
Documents can also be easily converted to any digital format with OCR software, including PDF, Microsoft Word, and Excel, and subsequently easily edited.



As mentioned, OCR software works with RPA technology to handle some of the repetitive, mundane tasks involved in invoice processing, including data entry.
As well as freeing staff from such mundane tasks, allowing them to focus on more valuable ones, OCR’s ability to handle larger volumes of data entry significantly reduces the overall time taken to process an invoice. Manual extraction and keying of invoice data can often take 24-72 hours, however with OCR, this can be completed automatically, in a matter of minutes.


Cost Reduction

With OCR able to read printed documents and convert them into digital, editable files, organizations end up making significant savings on labor, storage, and printing costs. Companies no longer need to outsource the task of data entry. Boxes, filing cabinets and other forms of storage no longer need to be purchased to hold paper-based POs and invoices.


Reduction in Errors

With manual data entry, human error inevitably comes into play from time to time. This results in exceptions when invoices are matched with POs and the need for the data entry and matching process to be repeated.
Errors such as this significantly reduce the speed in which invoices are processed which can be costly if companies miss out on early payment discounts or even worse, are forced into paying late penalty fees.
The accuracy and speed in which OCR operates, however, significantly reduces the number of errors that occur in the processing of invoices.


OCR Software Limitations and Opportunities

In spite of OCR’s powerful ability to scan and capture data from invoices, that would otherwise have to be done so manually, it has in recent times lost some of the lofty reputation it once had. Previously considered as being a ground-breaking tool, capable of completely freeing staff from all elements of manual data entry, optical character recognition is now recognized as having limitations.

While that is true, OCR hasn’t always been utilized to best effect. When used as a standalone technology, its impact is limited and requires occasional human intervention. However, when incorporated within a more comprehensive accounts payable solution, OCR’s impact is truly realized. Integrations with other technologies such as smart data extractions tools, AI, machine learning and RPA can produce true efficiencies and optimizations in the data capture and accounts payable prices.


Optical character recognition is a powerful technology, capable of transforming the data capture and accounts payable process. However, its true impact will only be seen when working in tandem with other transformative technologies such as AI, RPA, and machine learning, as part of a comprehensive automated solution. As one, these technologies make up a formidable team capable of both reducing costs and errors and significantly reducing the time taken to process an invoice.


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Posted by

Garret Pearse

Senior Consultant