OCR for Accounts Payable: How Scanning Software Automates AP

  Taylor Pettis    December 15th, 2020

OCR for Accounts Payable illustration

An efficient accounts payable process is essential, no matter the size or scope of your organization. Not only does a well-running accounts payable department help you keep an eye on debts in relation to cash flow, it helps prevent delayed payments to vendors and clients, preserving your financial stability and reputation.

One of the easiest ways to achieve that efficiency is by automating as much of the invoicing process as possible—that’s where optical character recognition (OCR) comes in. With OCR, you can reduce bottlenecks in accounts payable and build healthy relationships, all while gaining an accurate view of your company’s performance. Below, we’ll dive deeper into how OCR works, its benefits, and how it can seamlessly integrate into your accounts payable process.

What is Accounts Payable OCR Scanning?

Optical character recognition (OCR) is a type of technology that converts scanned documents into digitally searchable and editable text. By converting these documents into something that’s machine-readable, it eliminates the need for manually entering the listed information into whatever houses your data, be it Word documents, spreadsheets, databases, etc.

There are many applications for OCR, such as archiving old documents, like newspapers; mobile check deposits; mail sorting; license plate recognition technology; and more.

In the context of accounts payable, organizations usually use OCR software to capture invoice data like product numbers, prices, and payment dates. Though it typically does a good job, the technology isn’t perfect. There are times when it can’t read text for a variety of reasons. Still, using OCR vastly cuts down on the time it takes to process and digitize documents.

What are the Benefits of Using OCR in AP Processes?

If you make the smart decision to incorporate OCR into your accounts payable process, you may reap a variety of benefits. You’ll find that OCR:

1. Speeds up the process

On average, it takes anywhere from 24 to 72 hours to process an invoice. In some organizations, it’s not unheard of for invoice processing to take upwards of 12 days. With OCR, however, you can eliminate most data entry tasks and expedite this process significantly. According to the Institute of Finance and Management’s (IOFM) 2019 Efficacy Benchmarks report, top-performing organizations that automated their accounts payable processes were able to process roughly twice as many invoices per full-time employee than companies that hadn’t.

2. Produces fewer errors

No matter how skilled or experienced an accounts payable professional may be, invoice processing errors will arise: Human error rates for spreadsheet entry range from one to four percent. That might not sound significant, but just one mistake can be costly—even minor mistakes can add up. For instance, AT&T’s cumulative invoicing errors resulted in years of overpaying vendors and likely millions of lost funds. A quality OCR with a high accuracy rate can eliminate human error and the consequences that come with it.

3. Saves money

According to a 2019 report by Levvel research, companies that employed highly automated accounts payable processes spent, on average, only $2.36 per invoice, while companies that relied on minimal automation spent $15 per invoice. Though OCR is just one piece of the automation puzzle, it can still contribute to those savings in multiple ways.

For starters, the fewer staff members there are working on manual data entry, the more people you can have working on more complex, high-impact tasks. That means spending less on those menial tasks and freeing up resources that you can use elsewhere. Plus, since OCR provides more accurate data, you’ll be able to avoid costly accounts payable issues like paying an invoice twice or missing a due date and getting hit with a late fee.

How Does OCR Work in AP Processes?

Now that we’ve covered what OCR is and how your organization may benefit from it, let’s take a closer look at how it can fit into your accounts payable process. While solutions that employ OCR might differ, the OCR technology itself works the same way:

1. An employee scans the invoice:  First, someone scans an invoice into an OCR system, making sure to remove any staples or paperclips and to smooth it as best as possible beforehand, to ensure a clean scan.

2. OCR software reads the invoice: The software will then use keywords and layout elements to look for the relevant information on the page.  If there are any questionable or obstructed fields, an employee may have to manually enter and verify them.

3. OCR trains itself: Modern OCR software uses the corrections users make manually to train itself to recognize what it missed in previous scans.

4. OCR exports the data: Once all of the fields are good to go, the software will export the data into your ERP system or appropriate accounting database.

How to Really Improve Your AP Processes with OCR

If your organization processes a significant amount of invoices, OCR is invaluable. It can integrate seamlessly into any accounts payable process to save time, money, and headaches down the road.

Keep in mind that while it offers many benefits, you can’t rely solely on OCR. To truly improve accounts payable processes, you must find a solution that pairs OCR with automation capabilities. That solution should be able to seamlessly transfer invoice data to your ERP or accounting database. That solution may very well be MHC NorthStar.

MHC’s system employs OCR technology to capture data from scanned papers or emailed invoices and then ports that information directly into your ERP system for an automated, tiered approval system that can be tailored to your workflow.

But this efficiency isn’t confined just to accounts payable. With MHC, you can easily process and track invoices, payments, and other documents essential to the entire procure-to-pay process. Vendors can even have access to a self-service portal to search and track invoices.

Request a personalized demo and see MHC NorthStar in action today!

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