OCR invoice processing: How does it work?

If you’re looking into automating your invoicing workflow, you’ve probably noticed common features across different software solutions. OCR invoice processing is one such feature, 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 how OCR invoice processing works and the benefits of implementing OCR invoice processing into your workflow.

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

Short for Optical Character Recognition, OCR invoice processing is the process of extracting data from digital documents – such as PDFs, scanned paper documents or images captured by a digital camera – into editable files containing searchable text.

OCR invoice processing is a powerful tool that has transformed the Accounts Payable workflow. It’s important to note, however, that while OCR can extract data from a digital file, it doesn’t intuitively know what the extracted data means.

To get the most out of OCR invoice processing, OCR is typically used in combination with other advanced technologies, including:

• Machine learning (ML) and artificial intelligence (AI): Leveraging machine learning algorithms improves OCR accuracy by learning from corrections and patterns over time.
• Natural language processing (NLP): NLP enhances the ability of OCR to understand and process human language, improving data extraction from unstructured text.
• Template-based recognition: Using predefined templates helps OCR accurately capture data from invoices with known formats.

Step by step: How OCR invoice processing works

OCR invoice processing can be broken down into six steps. Let’s take a look at how it works:

1. Document scanning: The invoice is scanned or uploaded into the OCR system.
2. Pre-processing: To improve OCR accuracy, the quality of the scanned document is enhanced through techniques such as de-skewing, noise reduction and converting the document to black and white.
3. Text recognition: The OCR engine analyses the document to recognise text characters, identifying various fonts, languages and structures within the document.
4. Data extraction: The OCR software extracts relevant data from the invoice, such as invoice number, date, vendor information, total amount and more.
5. Post-processing: To ensure accuracy, the extracted data is validated by stakeholders. This may include applying business rules or cross-referencing with existing databases.
6. Integration: The extracted data is exported to various business systems – e.g. ERP or accounting software.

Once these steps have been completed, the Accounts Payable department processes the approved invoice for payment.

The benefits of OCR invoice processing

OCR invoice processing offers a variety of benefits to combat the challenges of manual invoice processing. Manual processing involves multiple steps, each requiring a considerable amount of time and effort, especially when handling large volumes of invoices.

What’s more, manual invoice processing often relies on paper-based documentation that needs to be collected, sorted and stored. This requires physical space and extra administrative work – and the more paper is used, the less sustainable the process. Paper invoices can also get lost, which can cause delays, impact vendor cash flow and strain your professional relationships.

With OCR invoice processing, such challenges are a thing of the past. Here are some of the numerous benefits you can expect from integrating OCR invoice processing into your workflow:

• Efficiency and speed: OCR technology automates data entry and significantly reduces the time it takes you to process invoices.
• Accuracy: By minimising human errors associated with manual data entry, OCR technology notably improves the accuracy of your invoice processing.
• Cost savings: OCR invoice processing reduces the need for manual labour, helping to lower your operational costs.
• Productivity: By replacing manual processes, OCR frees up employees to focus on more value-added tasks, improving productivity within your company.
• Data management: Via integration with other business systems, OCR enables easier storage, retrieval and management of invoice data.
• Compliance and reporting: By maintaining accurate records and providing detailed reporting capabilities, OCR invoice processing facilitates better compliance with financial regulations.
• Scalability: OCR invoice processing enables you to handle large volumes of invoices, making it an important asset for companies of all sizes.

OCR invoice processing is a transformative technology that allows you to make the tedious task of manual data entry a thing of the past. It enhances efficiency, accuracy and productivity, making it an important asset for any business.