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What is Optical Character Recognition (OCR)?

March 3 2023

Written by: Karen Broadhurst

OCR is a technology that lets you automatically convert scanned documents into digital text files. But how do you choose the best OCR technology for your organization? Read on to learn how best-in-class companies are automating invoice entry and utilizing OCR to help achieve their digital transformation goals.

What does OCR mean?

OCR stands for Optical Character Recognition. It is a technology that automates data extraction from scanned documents, PDFs, or images. Once an invoice or other business document is converted into digital data, it can be added to the company’s workflow system for processing.

Drivers for change

While the pandemic has been a catalyst for electronic invoicing, the reality is that 45% of invoices are still received manually (Ardent Partners, 2022). Today, the average cost to process an invoice is $9.25 (Ardent Partners, 2022). With transactions expected to quadruple by 2035 (Billentis, 2019), this poses a significant and costly challenge for overwhelmed AP departments already short on resources.

Many best-in-class organizations have turned to OCR as an entry point for digitizing their data and have begun moving towards fully automating their AP processes. In fact, 80% of companies are expected to solely use electronic invoicing (e-invoicing) by 2025 (Billentis 2019). There are a variety of factors driving this seismic shift across the AP function:

  • New government mandates around the world resulting in B2B, B2G and B2C e-invoicing, e-reporting, e-filing, e-auditing, and compliance requirements to combat the VAT gap.

  • IT systems and business models have evolved beyond traditional paper-based processes, requiring organizations to be more agile.

  • Digitized invoice data alone is no longer sufficient. The demand to support additional automated processes across AP, AR, and procurement has and will continue to increase over the next three to five years.

  • Driven by the onset of the pandemic, there has been a significant shift in how suppliers and buyers communicate and collaborate through emerging and established technologies.

How does Optical Character Recognition work?

Traditional OCR requires an AP clerk to scan a paper-based or PDF invoice to capture the data electronically—often at the header level­—leaving out essential data for critical business decisions. It also requires the set-up and maintenance of templates for each supplier. Once the invoice data is captured, the AP clerk needs to review the digitized information to check for missing data or inconsistencies.

In many cases, traditional OCR technology simply cannot keep up with the countless, ever-changing invoice formats AP departments receive from their suppliers­­—not to mention the various fonts and handwriting styles on paper invoices.

Inaccurate data also causes an increase in exception handling and generates more manual tasks for the AP department. Ultimately, traditional OCR can cause the very problem it was supposed to solve in the first place.

Managed OCR requires your supplier to send a paper or PDF document to a third-party provider such as Pagero, which is then scanned, and data is captured down to the line level. The extracted data is then sent for two rounds of human review before it is sent to the AP workflow without needing manual intervention by your AP staff.

Managed OCR capturing enables your AP team to be automated from day one regardless of the systems you use, your business size, or your suppliers’ digital capabilities. Additionally, it eliminates the need to purchase and maintain OCR scanning equipment and on-prem software. The fully managed service allows you to receive invoices electronically while seamlessly communicating all invoice data in a complete, verified, and accurate way every time.

Benefits of Managed Optical Character Recognition

Managed OCR is a great first step for capturing and extracting highly accurate invoice data while eliminating manual tasks typically handled by your AP department. It also opens the door to numerous benefits for AP Automation, including:

  • Straight-through processing

  • Improved data accuracy

  • Increased visibility and control over spend

  • Decreased Days Payable Outstanding (DPO)

  • Achieving true automation of your AP processes

By receiving 100% of your invoices electronically into your financial system from day one—regardless of how the supplier sends it—your AP team can focus on more value-added tasks that directly contribute to the bottom line and business efficiencies.

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Important considerations when selecting an OCR provider

When looking to implement either a Traditional or Managed OCR tool, it’s important to consider how invoice capture fits into the overall automation strategy of your organization. These are just a few questions to consider when researching solution providers:

  • How many suppliers do you do business with? Do your suppliers require maintenance of multiple invoice formats?

  • What are the preferred outcomes of implementing an OCR solution? 

    • Eliminate manual data entry tasks? Improve data accuracy? Increase straight-through processing? Future-proof your AP process? Ensure on-time payments?
  • Do you need a short-term solution, or is this part of a long-term digital transformation strategy?

  • Does your OCR provider have end-to-end automation capabilities that meet your future transformation goals?

  • Does your organization need real-time visibility with the invoice data being captured by the OCR tool?

  • Does your organization do business in countries that currently have or will soon have e-invoicing compliance mandates?

Optical Character Recognition and Pagero

Pagero’s Managed OCR solution (also known as Pagero Data Capture) has everything you need to automate your supplier invoice entry. Additionally, our format-agnostic solution works with your current way of exchanging documents.

Complete, verified, and accurate invoice data takes you one step closer to realizing the full potential of automating your AP processes. Pagero’s AP Automation solution allows you to receive all your invoices electronically straight into your financial system, regardless of the systems you use, the size of your business or the digital capabilities of your suppliers.

We are proud to serve as a key partner and adviser through various connectivity points to meet you wherever you are and wherever you may be headed in your AP Automation journey.

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Learn more about Managed OCR

Find more information about Pagero Data Capture and Pagero Data Extraction.
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