OCR Invoice Processing: Why It Is Not Enough For True Automation

OCR Invoice Processing—Why It Is Not Enough For True Automation

In the early days of digital transformation, when paper-based processes and manual workflows were the standard rather than the costly exception, the emergence of optical character recognition technology—often abbreviated to OCR—promised to change document processing forever. And in the decades since its arrival, OCR has indeed proven itself a valuable tool for busy professionals; in accounts payable (AP), for example, it is commonly used to speed invoice processing by eliminating the need for manual data entry. In those now-distant days, OCR was hyped as a one-stop automation solution.

And yet, despite making the leap to the cloud via APIs and increasing in overall accuracy over the decades since its debut, OCR has not so much fulfilled its promise as collided with its limitations. To understand why this popular technology is a component of, rather than a replacement for, a complete automation solution, it’s important to examine both the benefits it provides and the ways in which it fails to meet the business needs of companies competing in today’s digital global economy.

OCR Technology: A Tool, Not a Solution

For companies looking for opportunities to break free from the inefficiencies and errors of the paper-bound office of the past and move toward the all-digital, cloud-based collaborative workspaces of the future, OCR solutions were something of a minor miracle. Able to turn paper-based data into digital files that could be safely sent, stored, and accessed on demand, and without the associated expense, optical character recognition software gave AP departments a document capture solution they could use to streamline invoice processes while cutting labor, storage, and materials costs.

For contemporary companies who still receive and process paper invoices through accounts payable, OCR retains significant appeal.

Consider these benefits:

  • Increased Speed and Accuracy. Depending on the type of OCR software used, it’s possible to achieve up to 99.1% data extraction—particularly when using multi-pass OCR coupled with machine learning, for example. Using OCR with templates eliminates multiple invoice formats, improving both speed and accuracy through streamlined document capture.
    In addition, OCR invoice processing is much faster than any human when it comes to physically processing paper invoices; there’s no need for manual data entry, and software doesn’t need a coffee break.
  • Out of the box, many modern OCR software packages can tackle a variety of fonts and, in many cases, handwriting. With training, they can learn to follow templates, parse tables and other special formats for line items and other key data, and transfer them to a digital document. In many cases, even damaged documents can be scanned and the data retrieved so long as the desired information is even partially legible to the scanner.
  • Lower Costs. As part of an invoice processing solution, OCR cuts costs by reducing staff overhead. Digital invoices don’t need special physical storage or handling, improving the company’s environmental footprint.

At first blush, these benefits make a compelling argument, particularly for companies who may be taking their first steps into automation and do not have, as yet, a fully developed plan for achieving digital transformation in accounts payable or their organizations as a whole.

Compelling as they may be, the benefits of OCR are also extremely conditional—and come with some serious limitations.

To wit:

  • One Step Forward, Two Steps Back. To achieve its highest possible accuracy rates, standalone OCR technology needs significant assistance from artificial intelligence technologies such as machine learning and natural language processing. Training the software can be time-consuming and expensive; handwriting training is particularly finicky, and although that likely won’t be an issue for most vendor invoices in the age of email and digital invoicing, non-digital signatures are still used in many approval workflows.
    Beyond the need for training, and even with help from more advanced technologies, independent OCR invoice processing software still requires human oversight and verification.
    Having to manually confirm invoices can quickly negate the savings created by invoice scanning, since staff in your payable department will require training to master the OCR software and the verification process. Add in the time and resources necessary for verification itself, and you may find your OCR automation “solution” is actually costing you money.
  • Getting Everyone on the Same Page—Literally. If you’re set up for OCR but your supply chain is full of vendors taking a variety of approaches to invoicing, you may see increased costs from the time necessary to train your software to recognize and process the rainbow of invoice formats hitting your mailbox.
    Worse yet, if you’re not set up for native digital invoicing, your vendors may generate digital invoices, but print them out before sending them to you, forcing your AP team to run them through OCR to add them to your accounting system. Small delays and bottlenecks add up fast, and you may find yourself paying late fees and missing out on early payment discounts while you’re shuffling all this paper.
    Finally, one-off purchases from vendors who aren’t integrated with your AP processes will throw a spanner in the works by requiring extra “fiddling” with the OCR software or even manual processing.
  • Limited ROI, High Total Cost of Ownership (TCO). Standalone OCR solutions require a significant upfront investment. Add in hardware, training, and materials costs, and it’s entirely possible you’ll be spending as much—or even more—than you would to implement a comprehensive procurement and AP automation solution that includes advanced OCR as well as many other digital tools.
  • The End of Paper-Based AP Processes. The paperless office may still be a dream for much of the world (as it has been since at least the 1970s), businesses in the twenty-first century will soon be led and staffed almost exclusively by digital natives who grew up with Internet-connected screens instead of pen and paper.
    Prioritizing environmental responsibility and digital convenience as much as cost reductions and efficiency improvements, the next generation of business leaders will likely continue the existing push for a paperless office to new levels of success—leaving standalone OCR as a solution that may soon be without a problem.
    In fact, the United States government has already made digital invoicing capabilities a requirement for vendors as part of its Financial Innovation and Transformation initiative. Moving from paper-based processes to digital invoicing has helped the government save between 25 and 45 percent on every invoice—to the tune of up to $450 million annually.

No matter how you slice it, one thing is clear: in order to provide maximum value and return on investment, optical character recognition must be paired with more advanced AP automation technologies.

“Having to manually confirm invoices can quickly negate the savings created by invoice scanning, since staff in your payable department will require training to master the OCR software and the verification process. Add in the time and resources necessary for verification itself, and you may find your OCR automation “solution” is actually costing you money.” 

Overcoming the Limitations of OCR

It’s important to remember that while it is limited in its value and utility, OCR still remains a key component of digital transformation for payables departments, procurement teams, and many other business-critical functions—provided it’s part of a larger, comprehensive automation solution such as PurchaseControl.

When you choose to automate your AP and procurement with a cloud-based, fully digital automation software solution, you gain all the benefits of optical character recognition (including invoice scanning and invoice processing software) and a slew of tools that complement it.

Working in tandem with OCR, artificial intelligence, process automation, and advanced analytic tools make it possible to:

  • Automatically capture, store, and manage invoice data accurately and completely, improving the quality of your data for analysis and helping to ensure spend transparency while reducing both maverick spend and invoice fraud.
  • Integrate procurement and accounts payable with your enterprise resource planning system (ERP system), office software, and other systems to remove data silos and ensure vendor and invoice information is always correct and complete.
  • Seamlessly integrate both digital and paper invoices with your accounting system.
  • Use automatic three-way matching with purchase orders and shipping documents to speed invoice processing; eliminate duplicate and fraudulent orders while capturing more early payment discounts and avoiding penalties for late payments.
  • Eliminate the need for manual data entry across all your entire procure-to-pay process, not just invoice capture and processing.
  • Integrate vendor systems with your own, natively support electronic invoicing, communicate more effectively with key suppliers, and provide an intuitive vendor portal to easily evaluate and integrate new vendors.
  • Create and monitor key performance indicators for invoice processing cycle times, first-time matches, and other crucial metrics to identify areas in need of improvement and streamline workflows over time for optimal speed, completeness, and accuracy.

Move Beyond OCR for True Accounts Payable Automation

OCR technology is a helpful tool, but it’s not a panacea. Take your invoice processing—and your entire procure-to-pay process—beyond the limitations of optical character recognition by investing in a comprehensive automation solution. By automating all your accounts payable processes, you’ll free your team to focus on more strategic tasks, eliminate costly delays and errors, and more effectively support your company’s goals for profitability and growth.

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