Optical Character Recognition and E-Invoicing

Automation of business processes has become the single objective of every multinational corporation. Automation saves a lot of money in the long run. It also streamlines the process and makes it more robust. In the recent past, two technologies have helped companies automate their accounts payable departments. These two technologies are optical character recognition and e-invoicing. In this article, we will have a closer look at these two technologies as well as their advantages.

Optical Character Recognition

In the past, companies had an accounts payable department. The task of this department was to collect all the paper invoices from their supplier. The information from these paper invoices had to be entered into the system. Once this information was present, all the boring stuff like taking approval for invoices, and actually paying invoices also had to be done manually. This process was obviously very expensive and wasteful. A large number of people had to be hired to do mindlessly do data entry jobs.

The introduction of optical character recognition technology has brought efficiency and cost-effectiveness to the process. The steps followed to manage invoices via optical character recognition (OCR) process have been mentioned below:

  • Read: The first step in optical character recognition (OCR) process is to make sure that all the invoices can be read by the computer. This can be done by scanning paper invoices and converting them into a machine-readable format. The other formats like e-mails and PDF are already readable by machines. There are software tools available which train the computer to extract information from invoices. Hence, the role of data entry operators can be completely eliminated. Few employees might be required to validate the business information. However, by and large, the process will be automated and will run on its own.
  • Route: Once the invoice information has been extracted, it needs to be routed to the correct personnel for internal approvals. All companies have their internal approval processes in place. These processes depend upon the dollar value of the invoice being posted. Sometimes, these also depend upon the type of invoice being posted. Most optical character recognition (OCR) tools also provide the technical capabilities required to get these invoices approved. Once again, this saves time and the workflow software deployed is more efficient than the e-mail approval processes that companies tend to have in place.
  • Management: The invoice posting and payment process need to be monitored for efficiency. This creates the necessity of reports that allow tracking of pain points and enable quick resolution. Optical character recognition (OCR) tools have an inbuilt capability to configure out of the box reports. These reports automate the management information systems(MIS) process as well.

Downside:

Although the optical character recognition (OCR) technology-driven processes might seem to be a godsend, they also have their disadvantages.

  • Technology Intensive: Implementation of optical character recognition (OCR) tools converts the accounts payable department into a technology-intensive department. This means that the maintenance and management of processes will have to be done by technology experts. The skillset required for this are very different. Hence, companies either have to hire new workers or they have to subcontract their work to technology companies. This leads to increased costs and increased dependence.
  • Upfront Costs: It is true that per invoice processing costs are drastically reduced. However, a significant layout is required upfront. These costs need to be recouped from the savings. Hence, the implementation of these tools only makes sense if a large number of invoices are processed. If the number of invoices processed is small, then a longer time will be required to reach breakeven and then there are chances that the technology might become obsolete.

E-Invoicing

E-invoicing is different from optical character recognition (OCR). It can be said to be the next level of technology. This technology recognizes the fact that the disparity between the vendor and the company’s system leads to duplication of processes. For instance, there is a person employed at the suppliers end to create an invoice. Then another person needs to be employed by the company to enter the same invoice. Instead, if the two systems were connected, the information entered once could be electronically transmitted to the other system and the duplication of efforts could be stopped.

E-invoicing tools provide a common platform where suppliers and customers can enter information and transmit to the other party. Since these tools are connected to the ERP systems of both parties, they can provide real-time status updates, and the coordination effort between the two departments is also drastically reduced.

Most e-invoicing tools give flexibility to their customers. This means that both parties can decide the extent of information that they want to share with their counterpart. The idea of e-invoicing has been derived from the idea of a paperless office. All information including purchase orders, invoices, credit notes etc. is transmitted electronically.

To sum it up, there are a lot of tools in the market which allow for easy automation of the accounts payable processes. The adoption of these technologies is increasing at a fast pace. Within a few years, these tools will become standard and accounts payable processes as we know them now would have become obsolete.


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The article is Written By “Prachi Juneja” and Reviewed By Management Study Guide Content Team. MSG Content Team comprises experienced Faculty Member, Professionals and Subject Matter Experts. We are a ISO 2001:2015 Certified Education Provider. To Know more, click on About Us. The use of this material is free for learning and education purpose. Please reference authorship of content used, including link(s) to ManagementStudyGuide.com and the content page url.


Management Information System