Invoice OCR: What It Is and How It Can Streamline Your Invoice Processing

What is Invoice OCR?

OCR stands for Optical Character Recognition. It's a technology that reads physical documents and images and converts them to machine-readable text. An OCR program, for instance, can scan various documents, record the information, and then present the data on those scanned paper documents in a way that is easy to read and process.

OCR technology is particularly beneficial for processing invoices, as all data—regardless of whether it was sent via an electronic invoice or paper invoice—is consolidated into the same system, and the business isn't forced to juggle various different formats.

OCR technology isn't exclusively used to process invoices. The same technology is also utilised to help visually impaired individuals and is also bundled into self-driving cars, where it’s used to recognise road signs.

How Does Invoice OCR Work?

OCR software relies on artificial intelligence (AI) and machine learning (ML)—two technologies that have improved immensely over the last few years.

AI is the processing centre of OCR software. It's trained to recognise patterns in images and texts and knows what to do when it sees a specific pattern. For instance, while the invoice number and invoice date both contain a series of numbers, AI understands that they use different formats, and by processing and comparing both of them, it knows which is which.

ML trains AI to recognise these patterns, and as it's a gradually evolving process, it continually improves. The more invoices that a business processes, the more OCR software will learn about that business, including vital information such as preferred formats. So, even if the software makes mistakes in the beginning, they will become less common over time.

The Benefits of Invoice OCR for the Accounts Payable Process

Scaling your business is all about streamlining and simplifying. Invoice OCR is designed with simplicity in mind, providing benefits such as:

Increased Efficiency

Before the days of invoice OCR software, transferring invoice data from paper or PDF files was a chore—a manual data entry process that was inefficient and time consuming. However, OCR data extraction is automatic and can read data from most types of invoices.

Increased Accuracy

Humans make mistakes, and the simpler and more time-consuming the task, the more likely they are to switch off and make mistakes.

An invoice OCR solution doesn't rely on regular human input, so it isn't exposed to the same risk. Furthermore, as it improves with every invoice that it processes, its accuracy will increase over time.

Cost Saving

An Adobe report estimated the cost of processing invoices to be between HKD 117 and HKD 313 per invoice. Not only must you consider the price of labour, but you also have to factor in variables such as mailing costs and errors. Many of these costs will be reduced by implementing OCR invoice processing.

Free up Resources

Automated invoice processing means you're not tying up skilled members of your accounts payable team and can direct them to more productive tasks. Their skills will still be needed to manage aspects of the accounts payable workflow, but they won't be spending their days transferring basic data.

Data Security and Ease of Use

You could keep paper invoices in their original format, but it will complicate accounting and auditing processes down the line. It may also cause compliance issues and expose your company and clients to unnecessary risk. Paper invoices stored in a filing cabinet are not as secure as password-protected data stored on a secure server.

What's more, it's all easily editable and searchable data, so you can make checks and changes with a few simple clicks.

Improve Vendor Relationship

You're not the only one benefiting from optical character recognition. The streamlined accounts payable workflow will also benefit your vendors, as they'll receive payment quickly and with fewer disruptions along the way. As a result, they will be more inclined to conduct business with you in the future and may provide additional benefits such as early payment discounts.

Integrate with Accounting Systems

OCR automated invoice processing will integrate seamlessly with existing accounting systems, optimising all accounts payable processes. Simply integrate OCR into your accounting software and set it to work.

You don't need to teach it how to read invoice data, as it knows how to do that already. It will also improve its data extraction process as it reads and processes more company invoices.

Challenges with Invoice OCR

In the early stages, OCR invoice processing may struggle with rare invoice formats, requiring manual intervention. It will also make mistakes. Just like a new employee who's still learning the ropes, they don't have the experience or capabilities required to perform with 100% accuracy every time.

Mistakes are common among employees, as well, and the nature of OCR technology means that it improves with every invoice.

OCR invoice processing should be monitored in the early stages to check that the data extraction process is operating optimally and all extracted data is correctly translated and stored.

Invoice OCR Best Practices

To properly integrate and use optical character recognition (OCR) technology, follow these steps:

Evaluate Current Workflow

The first step is to evaluate your existing workflow and determine if you need a new invoice processing solution and, if so, what kind of capabilities you require.

Some of the signs that you need invoice OCR include extensive manual data entry and a growing number of invoices in various invoice formats.

Select the Right Software

Don't sign up for the first invoice processing software that you find. Make sure it uses OCR data extraction and consider factors such as:

• International Operation: Can the software process data in various languages, currencies, and formats? This is key if you receive invoices from overseas.
• Price: Good software suites are rarely free. The question is not whether it's free but whether the price justifies the potential cost savings. In other words, are you getting good value for money or paying for features you don't need?
• Scaling: Accounting systems must be able to grow along with your business. Otherwise, all those invoices and data reporting demands will hold you back. So, in addition to considering how the software will help your business operations right now, consider whether it's capable of meeting your needs as you grow.
• Ease of Use: OCR invoice processing shouldn't be complicated, but if there are implementation issues and unnecessary complications, it will be frustrating to use. User experience is key.

Arrange OCR Training

To prevent slow invoice processing speeds and early-stage complications, train your team to use the software. They may be reluctant at first—it's new, and employees who are used to doing something one way may baulk at the idea of changing. So, show them how it works and how it can benefit them and your company.

Regularly Monitor the Software

Monitor your OCR invoice processing software to ensure there are no issues with data capture, invoice data extraction, or data entry. As noted above, mistakes will occur and are more likely in the early stages, but by monitoring the system, you can catch and fix these mistakes before invoices are finalised.

Streamline Your Claim Management with Aspire's OCR Technology

Aspire leverages advanced technology to accelerate invoice processing and support smoother business operations. With Aspire's Business Account, you can use OCR (Optical Character Recognition) technology within the Payables Management feature to extract data from invoices and receipts—saving you hours of manual work.

In addition, Payables Management allows you to upload thousands of invoices, customise approval workflows, and automate payments. You can also optimise your cash flow by scheduling bulk payments based on invoice due dates, helping you ensure timely payments every time.

Aspire’s commitment to efficiency is one reason why growing businesses across Hong Kong trust us with their financial operations. Open your Aspire account today and transform the way you manage business finances.

Frequently Asked Questions

What are the disadvantages of using OCR invoice processing?

It's not a flawless system, but its issues often lie with the quality and legibility of invoice data, as well as an inability to recognise some languages. These issues can be negated by incorporating manual checks and continuing to use the software so that it can learn.

What is manual invoice processing?

It refers to the act of manually processing invoices, a time-consuming process that entails transferring details to accounting systems, verifying invoices, routing invoices for approval, checking payment terms, and finalising payments.

Is OCR invoice processing expensive?

No. It's usually a very cost-effective solution, especially when you consider the potential cost savings of using such a system. There are various software solutions available, so check them, compare their features, calculate the cost, and find one that suits your current and future invoicing requirements.

How does OCR data capture work?

OCR systems store various patterns in their database, and they draw on these patterns when reading an invoice. The software looks for key pattern indicators that it recognises and then compares these to the ones in its database to determine whether it's looking at an invoice number, line items, vendor details, or other key data.

Can invoice OCR technology read all invoice images?

No. It can read most invoices and other financial documents, but it often struggles with low-quality images, such as poorly scanned images. It may also struggle to understand complex and unusual formats, although it's constantly learning, so it will improve with use.

What data does OCR extract from an invoice?

During the invoice data extraction process, an OCR program will pull information such as the invoice number, line items, prices, due dates, and vendor details. OCR extracted data can then be sorted for easier reporting.