Magazine Article | July 25, 2006

Don't Overlook The Benefits Of Automated Invoice Processing

Source: Field Technologies Magazine

Take the costly manual labor out of processing invoices by implementing an automated data capture solution.

Integrated Solutions, August 2006

Everyone processes invoices, and as such, everyone experiences the pains of the costs and personnel that get tied up to do so. Industry research shows that as much as 70% of all invoice processing costs are wrapped up in document handling and data entry processes. According to a survey conducted by International Accounts Payable Professionals (IAPP), the average cost to process an invoice manually is $8 per invoice. Those costs can increase dramatically if a problem (e.g. an exception) occurs — and approximately one in five invoices contains such a problem.

Handling invoices manually slows down the process as well, adding to the costs. Statistics show only 44% of companies are able to process invoices in the ideal time frame of one week, and almost 25% of companies need more than three weeks to process invoices. That means companies can face hefty charges from customers and/or trading partners for late payments on invoices. Additionally, original invoices must be retained for extended periods of time, for business and compliance reasons. This can require expensive off-site storage facilities or space-eating records management file systems.

Electronic invoices via Web-based forms or electronic data interchange (EDI) could reduce the costs by eliminating the paper invoice forms. However, paper invoices will not go away anytime soon. “In a 2004 study, respondents who received electronic invoices in their organization indicated that EDI represents less than 10% of their total invoices,” says Jim Vickers, Captiva VP, EMC Software Group for EMC Captiva. “Other industry research shows that as much as 96% of all invoices are still received on paper. Clearly, electronic data interchange has yet to replace paper as the medium of choice for invoices.” The best way for companies to reduce costs in invoice processing is with data capture solutions to automate the process.

Forms data capture technology began with data entry processing, where processors viewed a digital image of a document or form and typed the data into the company’s ECM (enterprise content management) or ERP (enterprise resource planning) system. Since much of the critical data that businesses needed from the forms was found in consistent locations on their forms (e.g. credit card number, Social Security number), template-based technology emerged to automatically process the desired data from the page. Users define the parameters for the data fields of each type of form in the template, including data locations and type (e.g. alpha, numeric, or alphanumeric). The software then knows exactly what and where to locate the precise data needed on the form. The only human intervention needed is to verify data characters the software flagged as questionable. “While template-based technology offers exceptional data capture from structured documents — where the data remains in the same location in each instance of the document — the technology is not as effective with semistructured and unstructured documents, such as invoices,” says Sam Schrage, VP of operations, marketing, and international sales for AnyDoc Software, Inc. “Invoice formats vary greatly, and the desired data from them is often in a different location from one invoice type to the next.”

Data capture has evolved from looking at isolated boxes on structured forms to capturing information as it moves from document to document, which makes it ideal for invoice processing. Invoices, though forms, vary from document to document. You might be collecting the same information, but it will be in a different place. Free-form data capture technology allows the data processing software to perform full-page optical character recognition (OCR) on the document to locate and capture critical data, wherever it may be found on the page. To do so, the software relies on customizable keywords (such as PO [purchase order] number) to locate any combination or variation of them on the document (e.g., “P.O. #” and “P.O. No.”). Once finding those keywords, the software looks to the left or right of the keyword to locate a number and read it.

 In addition to the invoice number, OCR-based invoice processing software can capture the date of the invoice, the vendor, the total amount due, and other line item details. The line item details pose a bit more of a challenge to invoice processing software — not only does the location of the data change, but the content will change as well, so keywords aren’t as effective. “If you’re dealing with expense-type invoices, which usually involve more ad-hoc buying, there probably won’t be a PO to reference,” says Phil Bennett, CTO at Peladon Software. “You now need to be capture line items, such as product descriptions and codes, on incoming invoices.” To accurately capture this information, while still maintaining the automated processing the software enables, companies can add to the software’s keyword list by importing descriptions of product numbers from various suppliers. Capturing invoice data at such a detail as this means capturing more data and more customizing of the software, meaning a possible increase in cost to your solution.

Automating invoice processing can provide significant productivity gains and a quick return on the investment in the solution (industry stats show a payback of 6 to 18 months on average). “With the evolution of data capture technology, up to 95% of invoice anomalies can be corrected without any human intervention,” says Vickers.

During the data extraction stage, the business rules programmed into the software practically guarantee character recognition quality. However, the data must be validated. Integrating the invoice processing solution with accounting systems or other enterprise applications can do this. The solution can search by vendor name and match up PO numbers, dollar amounts, etc. and validate the information. Then, the data is exported into ECM, business process management (BPM), accounts payable (AP), ERP systems, or other back end systems.

Large enterprises (e.g. Fortune 2000) have typically been the first adopters of automated invoice processing solutions, largely because the volume of invoices processed was so large that a payback could be quickly found. Also, the technology was new and therefore more expensive. Now, data capture technology has evolved enough that costs are decreasing — some software is priced as low as $7,000 for basic, low-volume needs. “Whether a company simply wants to scan and store invoice images, extract critical data off them to use in back end systems, or have the software validate calculations and automatically perform database table lookups, there is a software platform that can accommodate them,” says Schrage. The adoption of invoice processing solutions is now extending to the SMB market, due to the flexibility and costs of the solution, as well as advancements in the ease of use of the solutions and lower costs of scanning hardware.