What is OCR invoice processing, and how does it work?

If you’re looking into automating your invoicing workflow, you’ve probably noticed a few common features across different software solutions. OCR invoice processing is one of those features – and it’s one that you won’t want to miss.

OCR is technology that automates the extraction of data from documents. It converts digital documents into editable and searchable data, making OCR technology an essential invoice processing feature.

In this article, we’ll cover what OCR invoice processing is, how it works and the benefits of implementing OCR invoice processing into your workflow.

Key takeaways:

• OCR invoice processing automates data extraction, turning PDFs, scanned documents and images into searchable, editable text. It alone can’t interpret meaning, so it’s often paired with technologies like AI, machine learning, NLP and template-based recognition for higher accuracy.
• The process involves six main steps – from document capture to system integration – with human-in-the-loop (HTIL) review ensuring accuracy when data is unclear.
• By eliminating manual data entry and paper-based workflows, OCR saves time, reduces errors and increases efficiency across accounts payable.
• The benefits of OCR invoice processing include faster processing, lower costs, improved compliance, better scalability and smarter data management – all critical if you’re looking to streamline your finance operations.

What is OCR invoice processing?

OCR (Optical Character Recognition) invoice processing is the automated extraction of data from digital invoices – such as PDFs, scanned paper documents or photos – into searchable, editable text.

OCR invoice processing eliminates the need for manual data entry, speeding up accounts payable workflows and reducing human error. In short, it’s a valuable asset, to say the least.

With that being said, it’s important to note that OCR alone has its limits. It can recognise and digitise text, but it doesn’t intuitively understand what the extracted data means. That’s why OCR is typically paired with other technologies to make invoice processing smarter and more accurate.

Key technologies that enhance OCR invoice processing include:

• Machine learning (ML) and artificial intelligence (AI): ML and AI systems learn from past corrections and patterns, continuously improving the accuracy of data extraction over time.
• Natural language processing (NLP): NLP helps OCR interpret unstructured text and context – like line-item descriptions or payment terms – making it easier to extract meaningful data.
• Template-based recognition: For invoices with consistent layouts, predefined templates help OCR systems pinpoint where key data fields (like totals, invoice numbers or due dates) are located.

Together, these technologies transform OCR from a basic text recognition tool into an intelligent engine for automating invoice processing at scale.

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Step by step: How OCR invoice processing works

OCR invoice processing typically follows six key steps. Here’s what the process looks like:

1. Document capture: The invoice is scanned or uploaded into the OCR system from sources like email, mobile apps or file uploads – PDFs, images etc.
2. Image pre-processing: The system enhances image quality to boost recognition accuracy .Techniques like de-skewing, noise reduction and greyscale or binary conversion help create a clean, readable version of the document.
3. Text recognition: The OCR software analyses the document to identify printed or handwritten text, recognising fonts, formats and multiple languages where necessary.
4. Data extraction: Key fields – e.g. invoice number, date, vendor name, line items, tax and totals – are automatically extracted using pattern recognition, templates or AI-powered field detection.
5. Data validation (post-processing): Extracted data is checked against business rules, supplier records or PO systems to catch errors and inconsistencies. A human reviewer may step in to verify uncertain fields, especially in complex or low-quality documents – a process known as human-in-the-loop (HITL) which helps improve system accuracy over time.
6. System integration: Clean, validated data is exported to downstream systems like ERP, accounting software or AP automation platforms, ready for approval and payment.

Once integrated, the accounts payable team can review and process the invoice – often with little or no manual input at all.

The benefits: Why OCR invoice processing matters

Manual invoice processing is slow, labour-intensive and error-prone – especially if you’re dealing with high volumes of invoices. From data entry to filing, every step eats up time and resources.

As if that wasn’t enough, paper-based workflows add another layer of inefficiency. Invoices must be collected, sorted and stored, taking up physical space and increasing admin overhead. They’re also easy to misplace, leading to delays, missed payments and strained vendor relationships. Plus, all that paper? Not exactly sustainable.

With OCR invoice processing, these pain points are a thing of the past: it digitises and automates the process, freeing up time, reducing errors and accelerating accounts payable from end to end.

Integrating OCR invoice processing into your workflow? Here’s a look at some of the benefits you can look forward to:

• Faster processing: OCR invoice processing automates data entry, significantly reducing the time it takes to process invoices – from days or weeks to just a few minutes.
• Improved accuracy: By reducing manual input, OCR helps minimise human errors and improves the overall accuracy of your invoice data.
• Lower operational costs: Automating invoice processing reduces the need for manual labour and administrative tasks, helping to lower operational costs.
• Increased productivity: With fewer repetitive tasks to manage, your finance team can focus on more strategic, value-added activities – and that benefits both them and your bottom line.
• Smarter data management: OCR integrates with ERP and accounting systems, making it easier to store, retrieve and manage invoice data in a digital environment.
• Improved compliance and audit readiness: Digital recordkeeping and automated reporting features support regulatory compliance and simplify audits.
• Better scalability: OCR invoice processing can easily handle growing volumes of invoices, which makes it a reliable solution for businesses of all sizes – a key feature if you’re aiming for growth.

By combining speed, accuracy and scalability, OCR invoice processing not only streamlines your accounts payable workflow, but also creates a more cost-efficient, compliant and future-ready finance operation.

Final thoughts

OCR invoice processing has moved from being a nice efficiency boost to an essential part of modern finance operations. With that being said, not all OCR tools are created equal – and that’s where Pleo Accounts Payable comes in.

With Pleo’s smart invoice processing, you can automatically capture incoming invoices using OCR. Extract terms, VAT and amounts, and flag duplicates to prevent double payments.

Set granular approval rules by amount, team or custom tags such as vendors, projects and more. Pleo routes each invoice to the right person, ensuring every payment gets the oversight it needs.

Keep all invoice details in one place, from purchase orders and approvals to invoices and payment statuses. Everything is documented, easy to access and ready when you need it.

No more chasing invoices, no more build-up of payments to be made – no more nonsense.