In this article, we will explore exactly what invoice OCR is and some of its benefits. We also share our simple 10 step OCR process for invoicing. Read on to learn more.
OCR (Optical Character Recognition) for invoice is a technology that converts scanned or photographed invoices into editable and searchable digital text. It streamlines the data entry process by automatically extracting information such as dates, amounts, and vendor details from invoices.
Example: Using Adobe Acrobat's OCR technology, a company can scan paper invoices from vendors like Office Depot and extract key details such as invoice number 12345 and total amount $567.89 for seamless digital record-keeping.
Use our 10 step OCR invoicing process to efficiently manage your invoices.
Optical Character Recognition (OCR) begins with scanning the physical or digital invoice to capture its content. This step converts the invoice into a digital image.
Example: A company receives an invoice from "DAN Supplies" for 100 widgets. They use a scanner to digitize the invoice, capturing all the details as an image file.
The OCR software preprocesses the scanned image to enhance its quality and readability. This may involve noise reduction, binarization, and deskewing to ensure accurate text extraction.
Example: The OCR software detects some smudges on the scanned invoice and applies noise reduction to remove them. It also straightens the image to correct any tilts.
The OCR system identifies and separates the text regions within the image. This step involves locating blocks of text, such as headers, line items, and totals.
Example: The software detects the header "Invoice" at the top, followed by blocks of text for items like "100 widgets" and "Total: $500."
The OCR software recognizes individual characters within the detected text regions. It uses pattern recognition and machine learning algorithms to convert images of text into machine-readable characters.
Example: The system recognizes the characters "A", "B", and "C" in "ABC Supplies" and converts them into digital text.
After recognizing the characters, the software performs post processing to correct any errors. This includes spell-checking, format corrections, and validating the recognized text against known patterns.
Example: The software corrects a misrecognized character in "Total: $500," ensuring it reads correctly and makes sense in the context of an invoice.
The OCR system extracts relevant data fields from the recognized text. This step involves identifying and categorizing information like vendor names, invoice numbers, dates, and amounts.
Example: The software extracts "ABC Supplies" as the vendor name, "INV-12345" as the invoice number, "06/30/2024" as the date, and "$500" as the total amount.
The extracted data undergoes validation checks to ensure accuracy and completeness. This involves cross-referencing with existing records and checking for inconsistencies or missing information.
Example: The system compares the extracted total amount of "$500" with the company's purchase order records to confirm the invoice details are correct.
The validated data is then integrated into the company's accounting software. This step automates the entry of invoice details into financial records, reducing manual data entry.
Example: The OCR software automatically inputs the invoice details into the company's accounting system, updating the accounts payable with "ABC Supplies" and the $500 amount.
The original scanned image and the extracted data are archived and stored securely. This ensures compliance with record-keeping requirements and provides easy access for future reference.
Example: The company saves the digitized invoice and the extracted data in their secure cloud storage, ensuring it can be retrieved if needed.
Finally, the processed and integrated data is reviewed and approved by the appropriate personnel. This step involves verifying the accuracy of the OCR results and authorizing payment.
Example: The accounts payable manager reviews the invoice details in the accounting system, confirms their accuracy, and approves the payment to "ABC Supplies" for $500.
MedEquip Supplies is a prominent supplier of medical equipment that aims to improve the handling of vendor invoices from receipt to archiving. Here’s how they implemented our simple 10 step process.
Invoices for products like "X-Ray Machines" are received via email and uploaded into the OCR system for processing.
The OCR system preprocesses images of invoices, such as those for "MRI Scanners," by deskewing, reducing noise, and adjusting brightness and contrast to enhance clarity.
Using OCR technology, the system extracts key data fields from invoices, like invoice number 89345 and items including 15 units of "Surgical Masks" from HealthTech Inc.
Extracted data, such as invoice number 89345, is validated against predefined rules and existing records to ensure accuracy, flagging any discrepancies for review.
Discrepancies, such as a quantity error in the "Ultrasound Gel" order, are corrected from 200 to 220 units based on the vendor's purchase order.
Validated data, like that for 50 units of "Stethoscopes," is integrated into the SAP ERP system, updating financial and inventory records.
Processed invoices, such as those for 30 units of "Patient Monitors," are digitally archived with metadata tags for easy retrieval.
The system generates detailed reports, including all invoices processed in the quarter for HealthTech Inc., aiding in financial analysis and vendor performance monitoring.
Invoices with issues, like those for 100 units of "ECG Machines," are flagged for manual review by the accounts payable team.
Continuous learning from manual corrections, such as repeated adjustments to product codes like MED456, enhances the OCR system's future accuracy and efficiency.
Here are some of the benefits of using OCR solutions for invoices:
OCR technology automates the data extraction process, significantly reducing the time spent on manual data entry. This leads to faster invoice processing and allows employees to focus on more strategic tasks.
OCR solutions minimize human error by accurately capturing data from invoices. This reduces discrepancies and ensures that financial records are reliable and precise.
By automating the invoice processing workflow, OCR solutions reduce labor costs associated with manual data entry. This can lead to substantial savings for businesses over time.
Automated invoice processing speeds up the approval process, resulting in quicker payments to vendors. This can improve relationships with suppliers and may even lead to early payment discounts.
OCR solutions streamline the organization and storage of invoice data. This makes it easier to retrieve and analyze financial information, aiding in better decision-making and financial planning.
Automated data capture ensures that invoices are processed according to compliance standards. This reduces the risk of regulatory penalties and ensures adherence to financial regulations.
Faster invoice processing and payment cycles lead to better cash flow management. Businesses can better predict and manage their financial positions, ensuring sufficient liquidity.
OCR solutions can easily handle increasing volumes of invoices as a business grows. This scalability ensures that the invoicing process remains efficient and effective even as transaction volumes increase.
We hope you now have a better understanding of how OCR for invoices works and the benefits it can bring to your business.