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Optical Character Recognition (OCR)

What is OCR?

Optical character recognition (OCR) is commonly referred to as text recognition. It is a program that’s capable of reading inputs and extracting key information, such as text, from scanned images, PDF files, and even photos taken from a camera.

OCR software often deploys machine learning and AI to improve the quality of its text recognition over time. OCR software is capable of singling out letters from images, turning them into words, and then creating sentences out of those words.

This allows authorized individuals to edit the text. It also completely mitigates the need for entering the data manually. In order to run properly, OCR systems often require a mix of hardware and software, especially when dealing with physical documents.

Hard copies are often scanned first, using an optical scanner, which is then converted into editable text with the help of software. OCR software that employs AI continues to improve and learn over time, thus further improving its ability to detect text accurately. 

How Does Optical Character Recognition Work?

There are a few key steps involved in optical character recognition. These include pre-processing, character recognition, and post-processing.

  1.  Pre-Processing

The first step is image pre-processing. Pre-processing is often done to improve the quality of the input image, often to increase the accuracy of recognized text. Pre-processing removes any unnecessary lines or issues that can affect the accuracy of the characters. Pre-processing helps ensure that the detected text is accurate.

  1. Character Recognition

The next step is character recognition. When input data is larger than the defined parameters, the software automatically selects key points. These selected characters are generally the essential points that are specified within the OCR software.

For instance, when recognizing key characters from an invoice, the software mainly looks at key points, such as:

  1. Post-Processing

After character recognition is complete, the images are post-processed to mitigate the risk of errors. OCR isn’t just used for detecting words; it can also be used to detect codes or numbers. This is very important as it allows the software to detect larger numbers, including serial numbers or PO numbers. 

In many cases, specific OCR systems are used by businesses depending on their needs. For instance, OCR software that’s designed to capture data from invoices can be configured to quickly and accurately recognize key data from different types of invoices. 

The Benefits of Using Optical Character Recognition (OCR) for AP Departments

OCR offers a variety of benefits to AP departments. Using a system that automates character recognition is helpful for the following reasons. 

1. Automate Menial and Repetitive Workflows

In general, recording data from an invoice and entering it into the company’s finance system is a low-level task. It’s time-consuming, resource-intensive, and incredibly repetitive. Businesses that receive lots of invoices can benefit from OCR as it allows them to either scan them in batches, or automate the workflows so that invoices are scanned as soon as they’re received.

This frees up the AP staff to focus more on business-critical tasks instead of having to repeatedly enter data from incoming invoices. 

More importantly, AP departments can define workflows, so invoices that are scanned are automatically sent for approvals to relevant parties, significantly accelerating workflows. 

2. Reduced Costs

Instead of having an AP clerk manually enter data into the system, you can automate the entire thing with a one-time expense. Once you set up OCR software and hardware, scanning invoices becomes a breeze, which will ultimately help you reduce operational spend. 

3. Centralize Your Data

All scanned invoices can be stored in a centralized system, making it easy to retrieve whenever needed. More importantly, the data can be routed to specific databases as well. This means you don’t have to worry about important information getting lost. 

4. Faster Processing

Since everything is automated, invoices are processed much faster. This means invoices can be queued for payment quicker than before, which can improve your company’s image and put you in a strong position when negotiating with vendors. 

5. Early-Payment Discounts

Since invoices are automated and paid quicker than before, using OCR technology allows businesses to take advantage of early-payment discounts as well. This can ultimately improve business performance, and reduce costs as a whole. 

Use Cases for Optical Character Recognition

Optical character recognition is used in a number of different applications, including but not limited to:

Simplify Data Entry With SoftCo’s Procure-to-Pay

SoftCo’s Procure-to-Pay is a fantastic solution that lets you automate your entire finance process. With SoftCo Accounts Payable Automation, AP departments can capture data using the company’s proprietary OCR technology, or outsource to SoftCo’s data capture service.

The invoices are dynamically matched to ensure that invoices are accurate. The AP solution automatically matches all invoices to contract POs and routes them for approvals, reducing repetitive tasks and significantly reducing the invoice lifecycle process.