Process Consultants all over the world are emphasising on the importance of transforming the AP department into a strategic business unit via superior technology enablement for Vendor Invoice Management. While many business processes have become automated, accounts payable (AP) processes remain largely paper-based and cumbersome. A recent study conducted by Gartner and Aberdeen Group reveals that 75% to 80% of invoices received today are still paper-based and needs to be processed manually. Clearly, paper is here to stay- at least for a while! The question then that needs to be addressed is-what is the best way to streamline these manual process to increase efficiency and enable resource optimizations?
The world of AP is riddled with the latest terminologies such as automation, workflows, process improvements, Content management, Character Recognition and such. Optical Character Recognition is often considered by many process experts as the crux of a successful Invoice Management automation strategy.
What is OCR?
OCR stands for Optical Character Recognition which helps an AP department to convert different types of documents, such as scanned paper documents, PDF files or images into editable and searchable digital data. For. E.g. A vendor may send an invoice in a paper format. This invoice can be scanned upfront, captured by an OCR engine which can extract out relevant invoice data such as invoice number, PO reference number, Date, amount, quantity etc.; data from both header and line item level. The data captured can then be validated for correctness and discrepancies and subsequently converted into Electronic Invoices which can then be posted into existing ERP system such as SAP. While not technically e-invoicing, OCR does eliminate the need for an employee to key in most of the invoice information manually. Studies shows that using a scan and capture center can help an AP department rely less on paper-based cumbersome processes and therefore become less prone to pitfalls associated with handling mass quantities of paperwork.
Key Benefits of OCR and Invoice Management:
- Read and extract characters automatically from the scanned forms and documents, unlocking the content for subsequent electronic processing
- Tangible benefits – reduces manual data entry errors, increases processing time, reduces invoice processing cost over time.
- Validation and Discrepancy check such as recognition of duplicate invoices by OCR.
- Traceability of historic invoices and payments through electronic archiving.
- Intangible benefits – better supplier relationships and supplier credit terms.
- Do more with less resources thereby utilizing resources for more strategic tasks.
OCR vendor selection – Few key considerations:
Some key features to consider while selecting an OCR software includes
- Full-Text recognition
- Learning capabilities- Adaptive + Rule based learning is always optimal
- Line item recognition
- Allows multiple clients
- Legal details recognition
- Handwriting recognition
- Vendor Bank accounts recognition
- Integration into various ERP applications such as SAP for:
- Data validation
- Duplicate Checks
- Exception identification and routing
- Invoice Approval workflows
- Handling One Time Vendors
- Auto-posting of invoices
- Pricing per invoice instead of per page
Setting the right Expectation:
First time OCR customers often show unbridled enthusiasm and have high expectations from the technology. However, it is important to remember that while OCR and the associated technology is indeed a ‘magical’ solution, expecting a 100% success rate for all incoming invoices is not realistic. Initially, OCR can only recognize standard invoices without specific adaption to customer environment. However, overtime, the adaptive and rule based learning capability of OCR can enable it to recognize and capture customer specific key data accurately with less manual validation – thus standardising non-standard invoices over time.
An organization must remember that technology enablement is never a ‘be-all’ solution. For achieving high automation rate the OCR customers and their vendors must collaborate to put in place a set of OCR best practices.
- Vendors are recommended to use the same invoice template every time
- As a good practice, set all logos and images to between 240 and 300 ppi
- Label Critical information such as Invoice Number, Date, vendor name etc.
- Identify the document by having a document header
- Avoid full or partial handwritten invoices
- Use white paper and avoid using transparent paper with rear side information
- Avoid ticks and stamps on printed areas
Avaali helps organizations significantly improve productivity and meet regulatory requirements by ensuring full visibility into both data and content related elements of a business process. Our consultants are experts in streamlining various processes such as AP. While many of them are ready to embrace OCR and its integration with solutions such as OpenText VIM, we have helped them understand that while OCR and Invoice Management cannot provide 100% automation for everyone, they can significantly reduce the time, labour cost and inefficiencies associated with manual paper-driven processes.