Your Essential Guide to Invoice Scanning
The digitization of the workplace marches on
Did you know that many tools in the business world were originally invented to overcome a physical limitation? For example, digitized scanning in its infancy enabled blind people to hear the written text and so opened up a whole world of literacy to them. [1]
By 1992 this technology evolved into the scanning of handwritten text, and as recently as 2019, the dream of scanners recognizing text and numbers in any language is being realised [2]
Today, this technology is a cornerstone of accounts payable automation in business. Invoice scanning has reduced the data capture function to seconds instead of 3 or more minutes, making it a highly desirable adaptation to accounting workflows.
The humble invoice ignites a data processing chain
A typical data entry workflow begins with a document that contains information. This information must be fed into a system to centralize record keeping and to help the business complete a process, e.g., paying a vendor for goods and services delivered to your business.
The most processed document in a business is an invoice. An invoice drives two processes:
- Accounts payable - An invoice is received from a vendor
- Accounts receivable - An invoice is issued to customers who have received goods or services from your business.
Let’s stick with accounts payable to explain invoice scanning.
Invoice documents are received physically or via email from vendors. Manual data entry requires a person to take key invoice data and either load it onto an excel spreadsheet or into the accounting software the company uses.
Invoice processing time can be from 3 - 5 minutes depending on the skill of the data capturer and the amount of information.
Paper invoices are sent to various points for authorization and processing, and once more, a person will input information into the spreadsheet or system until the process is concluded.
This document can be received and sent on by multiple people and is at risk of being lost or getting into the wrong work pile at any point. These are the limitations of manual processing.
To overcome these limitations and keep up with business practices that are advanced by technology, a business will begin to consider invoice automation.
The place of invoice scanning in accounts payable
Choosing technology before perfecting your workflow processes is like putting the cart before the horse. The invoice scanning process can be the first step to automation and then become more sophisticated as you find technology to support your workflow.
Payvy offers high-velocity accounts payable, which helps you to speed up processing and manage your cash flow.
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Typical steps for introducing invoice scanning into a workflow
Businesses rarely move from spreadsheets into fully automated invoice processing software unless there is some strategic push to do so.
The majority of businesses will improve their invoice processing workflow step-by-step over time.
Step 1
- Excel spreadsheets are minimized and accounting software purchased
- A data capturer or bookkeeper manually loads the invoice document into the software. The invoice format contains vastly different information for each vendor
- The document is loaded late in the process
- The invoices are passed around for authorization and completion. These documents often have multiple stamps with signatures to show what part of the process has been completed
- A cheque is written, or a bank payment loaded
- The paper documents are filed in storage spaces for audit purposes
Step 2
- Invoices are sent to a central point
- Invoices are scanned using an invoice scanner and saved as a pdf file which can be e-mailed to members of the accounting team for approval
- A bookkeeper or accountant may manually push along the invoice after checking that the correct data has been extracted
- Bank payment is loaded and approved within the accounting software
- Documentation is kept on a central drive or cloud storage solution, and paper copies can be kept for audit purposes
Step 3
By this stage, there will have been a push to reduce paper invoices and normalise scanned documents.
- Fully centralized system in place for processing invoices. Employees in any location scan documents into invoice scanning software and data extraction occurs within the system. An automated workflow process with schedules of authority will be in place, and work will be automatically pushed to the correct person via notifications and email
- Automatic data validation is the norm and if all accounting data meets the criteria and parameters set up in the workflow, it is pushed along to payment
- Payments are scheduled and notifications are sent to authorise and release payments
Step 4
- OCR, or Optical Character Recognition, is used to identify complex and diverse information from different invoice formats
- Data validation rules within the system allow extracted data to be taken from multiple documents and used to complete processes and draw up reports
- Automated bank posting is done and the final release of payment is a ‘one button’ function
- A vendor self-service portal can be set up for vendors to send invoices and retrieve information about the completion of the payment
Source: Pexel
How does invoice scanning work?
Automated invoice scanning software can integrate with your accounting software and allows you to scan, convert and extract data from invoices. It also allows you to digitize invoices, receipts and statements.
Documents are processed through an invoice scanner or can be pulled into an application on your smartphone. Scanned images are pulled into the applications which are synced with your accounting software.
Specific data fields are populated with information. This flexibility in using smartphone technology is a great solution for small businesses that want to keep equipment costs down.
The extraction of data
Every business will have key data that needs to be extracted from invoices, such as:
- Vendor name
- Vendor banking details
- Date of invoice
- Date of payment due
- Invoice number
- Details of goods or services
The invoice scanning software works using Optical Character Recognition (OCR) that allows the recognition of text from different languages and the transfer of that data into a machine-readable format.
What are the business benefits achievable with invoice scanning?
The main reason for adapting business processes to technological advancements is to remain in tandem with evolving business practices of your customers and vendors.
It stands to reason that when your business processes can no longer support faster turnaround times or come in alignment with the technology used by customers and vendors, your business will be seen as outdated and long-standing relationships can be affected.
The direct benefits of invoice scanning are savings on storage, more efficient processing of invoices and building better vendor relationships.
Having software scan the invoice and extract data eliminates the risk of human error, thus increasing data accuracy. Automation drastically reduces the time of invoice processing from 3 minutes to around 30 seconds [3] This is important to ensure speedy invoice payment.
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Why have other businesses invested in automated invoice capture software?
Dr. Robert Cialdini has conducted extensive research into what factors help consumers with their buying decisions. From this research came six principles of persuasion. The one that we want to look at is: social proofing [4]
Social proofing says people feel more secure when others have had favorable experiences or given positive product reviews.
So let’s examine why other companies have invested in invoice scanning software.
- The ability to eliminate lost or damaged documents by scanning early in the workflow
- The elimination of courier expenses or inter-business routing
- The benefit of a centralized capturing and processing point
- Standardization of business rules, allowing for the automation of approvals and balancing of workflow
- Reduction of non-value activities such as manual reminders to make payments and push documents through the workflow, and look up information in manual files
- A highly accurate audit trail with information about who accessed documents and compliance with authorization levels
- Integration with other enterprise systems to form a hub for information retrieval
Basic invoice scanning software
There are multiple options available, with the ability to purchase software online. Here are key features to consider:
- Integration with existing systems
- Modern and easy to navigate user interface
- Automatic data extraction
- Expense management
- Vendor management
- Reports
- After-sales customer support
Costs of invoice scanning software
The cost of OCR software depends on the type of data that needs to be extracted. Let's examine some options:
Freeware - provide basic scanning and output formats such as a jpeg or png format
PDF OCR converters - provide good quality images but are limited to PDF files for output. Costs around $100
Standard OCR - $100-$200 converting scans to Word, Excel, HTML or other formats
Corporate OCR - comes standard with advanced OCR features and integrations. Cost $200 - $500.
Enterprise OCR solutions - capture information from specialized documents containing tables, handwriting, and checkboxes. Cost $1000 and up [5]
Source: Pexels
Limitations of invoice scanning software
Research conducted by companies providing this software has found that it is 98% accurate. This sounds like a good number however, it does depend on the volume of invoices captured and the value of the invoices.
Some factors that affect invoice scanning:
- Data interpretation constraints
Basic invoice scanning software has limitations on reading handwriting, blurred scans, unrecognizable fonts (Comic Sans is regarded as the worst font for OCR), and tilted text
- Multiple invoice formats
A challenging area for scanning software is extracting data from non-standard formats. Providers of invoice software have developed standard templates which comply with data extraction principles to make it easier for scanners to read information.
Scanners can easily read formats produced in Word, Excel, and even Google docs because of this standardization.
A look into the future - how you can prepare your business
Artificial intelligence (AI) and machine learning (ML) are allowing huge strides to be made in document scanning.
AI is a machine-based reconstruction of human thought processes. In the field of automated data, the ability of programs to conduct deep learning allows for these programs to learn, reason and correct themselves for faster and more efficient processing.
Software that employs these concepts uses algorithms that continually learn from the actions that are executed and become more intuitive and proactive in their responses.
The more invoices AI ingests, the better it becomes at tracking what actions to take and what tasks to execute. With OCR, you still need user intervention because the OCR scanner cannot forward tasks to the next step.
A combination of OCR and AI frees humans up from this process. Basically, OCR knows how to recognize text, but AI knows what to do with it.
As AI progresses, the function of the accounting department will no longer lie with manual data processing and pushing of tasks through the workflow but will be increasingly focused on the analysis of data and making real-time business decisions.
Payvy takes the headache out of vendor management with its AI-powered accounts payable system. You can find out more here.
In the next decade, a rapid evolution will take the place of humans and machines learning together. Machines will take over many tasks that have been done by people for decades and this will also increase the speed and efficiency at which processes are concluded.
If you haven't yet started integrating invoice scanning software into your business, now is the time to start working through the steps mentioned in this article.
Footnotes:
1 - http://amodern.net/article/optophonic-reading/
2 - https://medium.com/ocrolog
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