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OCR in Accounts Payable

By Annapoorna

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Updated on: Oct 6th, 2023

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7 min read

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Optical Character Recognition (OCR) technology is commonly used to digitise various scanned documents into digital versions of readable and editable text. The OCR technology is used across all avenues of business and finance and is developing over time. Read on to know more.

Meaning of OCR

OCR stands for Optical Character Recognition, which converts scanned documents into machine-readable text. OCR is a boon to many businesses since it cuts down the manual entry task. 

In the context of accounts payable, businesses use OCR scanning software to capture invoice data like item description, item codes, rates, payment dates etc. Using OCR vastly helps in cutting down the time to process & digitise invoices.

Information such as invoice date, invoice number, product code and the like are scanned and converted into digital formats that are machine-readable with the help of OCR. 

Use and importance of OCR

Following are the uses of OCR-

  • Allows invoice automation

OCR digitises invoices in seconds. It can automatically recognise details at header level items and line items of an invoice. Thereafter, it automatically makes invoice entry with high accuracy. A user takes an average of 12 mins for manual invoice entry and face an industry average error rate of 3-4%. It can be completely reduced by the use of OCR.

  • Allows the user to copy and paste documents

OCR converts the physical copies of invoices and other documents into a ready-to-use digital version. This eliminates manual entry and the process of encoding. Once the conversion is complete, text may be copy-pasted with ease.

  • Scanning codes

e-Invoices generated by certain GST registered businesses contain signed QR codes that can be scanned to retrieve information about a B2B sale. 

  • Digital filing system

Documents can be fully copied and converted into machine-readable text. It helps offices to reduce the requirement of physical storage space. These e-versions can be stored on the cloud permanently. This ensures that the information is readily accessible at any time and the data is securely stored.

  • Extracting information from pictures

Pictures may also be copied and edited once the OCR technology extracts the text from the picture or document.

  • Converts handwritten documents

Invoices and handwritten documents may be scanned and converted into editable digital copies. It also serves as records of the business that can be retrieved easily.

Benefits for businesses by switching to OCR

  • Shorter and faster processes

Elimination of data entry is the biggest benefit for businesses using OCR. Data entry is often time-consuming and sloppy, thus making the accounts payable workflow processes longer than it should be.

  • Fewer errors

Prior to the introduction of OCR, manual entry was the only option for businesses. Often, mistakes were made at the time of entry in the spreadsheets, especially with regard to the amounts corresponding to the accounts payables. This would cause further inconveniences to the businesses. However, since OCR scans the entire invoice, errors are significantly few or completely eliminated. OCR technology is consistently improving with AI and ML to reduce errors.

  • Saves time and cost

Costs are cut down drastically when OCR is used. The expenses for stationery, printing, manual labour, etc., are all eliminated using OCR. The money otherwise spent on these resources can be put to better use.

  • Flexibility

With the help of OCR, the physical invoice can be converted into digital copies that are compatible with various processing software such as Word, Excel, PDF, etc. 

OCR Process in Accounts Payable

OCR invoice processing uses technology to digitally capture invoice data more efficiently and converts into searchable text based on invoice numbers, customer names, and totals. It is automatically entered into your accounting system for processing. Hence, OCR invoice processing for Accounts Payable is crucial. 

In the OCR process, the software digitally converts text on invoice into a machine-readable format. Thereafter, it pushes the data into your ERP for the accounts payable team to access.

Having OCR versus not having OCR for your organisation

OCR works best for organisations that have a large number of invoices. Once it is integrated with the accounts payable process, the businesses will see savings in time, cost, and potential for error. However, one must ensure that the OCR technology is combined with automation capabilities to get the best out of it. Automation helps speed up business processes overall and provides an easy solution for transferring invoice data to the business’s accounting database.

How does OCR function in AP processes?

Step 1: Scanning the invoice: 

The employee either scans the physical copy of the invoice using a scanner or receives a scanned copy of the invoice from their supplier. They should ensure that the invoice is properly scanned.

Step 2: OCR software processes the invoice: 

The software reads the header and line item level invoice information. Every data read is captured in a structured format and shown in the user’s screen for them to manually review/edit any information, if needed.

Step 3: Learn through Machine Learning: 

The software recognises the corrections and edits made by the user and learns from them. The software improves its performance during the subsequent times from the past learning for an invoice of the similar format.

Step 4: Exporting the data:

After the final review, the digitised data can be exported as an excel file. It can be used by the user for their internal consumption or can be pushed to the ERP or any accounting systems for seamlessly booking an invoice without a hassle.

How does Clear AP benefit your organisation?

Tighten your AP compliance by automating invoice capture and management with Clear. Clear AP is an end-to-end solution through which an organisation can receive, process, approve and post invoices to ERP. It provides a Vendor Portal through which your suppliers can submit invoices, collaborate with you, respond to onboarding requests and track payments.

The solution helps an organisation to digitise and validate incoming vendor invoices instantly. It ensures 100% error-free digitisation using OCR technology, runs several compliance checks on vendor invoice data with an objective to protect from booking non-compliant or fraudulent invoices.

OCR helps to reduce the time taken for capturing invoice data, the extracted data can be sent back to ERP. Such automation helps speed up business processes overall and provides an easy solution for transferring invoice data to the business’s accounting database.

FAQs on OCR in accounts payable

What is OCR in accounts payable? 

It refers to Optical character recognition (OCR) that is a technology which converts documents scanned into digitally searchable and editable text.

What is optical character recognition?

Optical character recognition, also referred to as the OCR and text recognition is a technology. An OCR program extracts and repurposes data from documents, camera images and image-only pdfs that are scanned. 

What is OCR invoice processing? 

OCR invoice processing refers to the process or the use of technology for digitally capturing invoice data.

How is optical character recognition used in accounting?

Optical character recognition is used in accounting for scanning receipts, invoices, purchase orders, and other essential documents.

What are examples of optical character recognition?

There are several examples. Optical character recognition is popularly used for document scanning and capturing invoice information, detecting logos of brands in social media posts, reads any vehicles' number plates, identifies road signs for self-driving cars and recognises product packaging in advertisement creatives.

About the Author

I preach the words, “Learning never exhausts the mind.” An aspiring CA and a passionate content writer having 4+ years of hands-on experience in deciphering jargon in Indian GST, Income Tax, off late also into the much larger Indian finance ecosystem, I love curating content in various forms to the interest of tax professionals, and enterprises, both big and small. While not writing, you can catch me singing Shāstriya Sangeetha and tuning my violin ;). Read more

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