Posted - 01/04/11 | 0 Comments

Why invoice scanning and OCR is no more than an interim solution

The following article first appeared in Peter Whent’s blog “Small Business Syndrome”. Peter Whent is Founder and Chief Executive of Clear . You can follow his blog here: http://small-business-syndrome.blogspot.com/

Invoice scanning together with Optical Character Recognition (OCR) – digitising paper documents to you and me – is presented by many as the answer to everyone’s electronic invoicing prayers. In fact one company which I won’t name, which claims to be a leader in e-invoicing, is actively promoting it as their strategy. There are several reasons why invoice scanning is not the answer and represents only an interim solution.

The holy grail in the world of e-invoicing is that an invoice should go from creation, to delivery, to approval, to payment without a piece of paper being created. In other words machine to machine with software doing the work along the way. Not a pipe dream at all. Today we deliver hundreds of thousands of true electronic invoices a year that follow exactly this path.

Invoice scanning and OCR (in the context of invoice processing) became popular because companies couldn’t persuade enough of their suppliers to adopt a truly electronic method of submitting invoices. This meant they found themselves in no man’s land – paying for an e-invoice solution but still having to retain a small army of employees to handle paper invoices. Scanning and OCR takes the paper, scans it and uses OCR technology to lift the data off the page so that it is useful and uses it to create an electronic invoice. But here is why it is no more than an interim solution:

1.       It is at best an inaccurate process. OCR software vendors will tell you they can read characters from paper with 99% accuracy. That may be so with a simple text document in a medium sized typeface. But when it comes to small print on invoices, the reality is that it is a lot less accurate. It only needs to read one character incorrectly in the wrong place for the invoice to fail in an electronic approval process. Someone has to manage these failures and exceptions. People involved in the process? Not what was promised from “electronic invoicing”

2.       Second – OCR on its own is not enough. The next thing a well run AP department will want to do is validate an invoice before it goes into an approval process so that it doesn’t get lost within the approval process. Validation, which is an automated process, includes all those pre-flight checks before starting an electronic approval process – is there a Purchasde Order (PO) number? Does it relate to an existing PO? Is there a supplier reference? Is there a VAT number? Does the invoice add up correctly? And so on. Even the most sophisticated solutions with people checking every invoice struggle with this. Suddenly the failure rate had risen. More inaccuracies and exceptions to manage. More people involved.

Of course the net result of this is that you or your outsourced provider has to incur some real costs to bring this error rate down. Guess who ends up getting stuck with those costs? So suddenly your business plan doesn’t look so good. Where you were expecting to drive the cost of processing each invoice down below £1, human intervention has resulted in costs being much higher.

Scanning and OCR has its place. Even allowing for the absurdity of taking an electronic file, printing it out on paper as an invoice, sending the paper to your customer for them to use an expensive process to turn it back into an electronic file – it has its place. But only if you build your business case based on there being a concerted effort to migrate from scanning and OCR to real electronic invoicing. You should aim over a three year period to turn a ratio of 80% scanned and 20% electronic on its head and have 80% submitted electronically. This is all about being good at persuading your suppliers to send you electronic invoices or online invoices. That is a whole subject on its own!

To see how a good e-invoicing deployment works download a case study here which shows how Essex County Council released 20 AP staff and will save £2.5 million next year by understanding the important distinction between scanning as a means to an end versus scanning as the answer. They now process tens of thousands of real electronic invoices – those that go from creation to delivery, to approval to payment without a piece of paper being created. Invoice scanning was merely a stepping stone which helped them to get there.

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