OCR vs electronic invoicing for Accounts Payable

Submitted by Thayer Stewart
When building a house, a carpenter would not use a hammer (which is a great tool) to insert a screw. There is a much more appropriate tool – a screwdriver. Similarly, OCR is a great technology, just not for Accounts Payable.

Insurance companies, financial institutions and the public sector have all applied OCR with some success to automate the capture of standard forms. Unfortunately, an invoice is not a standard form and efforts to read unstructured data with OCR technology just doesn’t work effectively.

When I say it doesn’t work, I simply mean that the money invested in OCR-related software and professional services cannot be justified relative to the realized benefits. OCR vendors like to talk about recognition rates (total characters that can be read automatically) being in the high 90 percent range. But the more meaningful statistic is first-pass rates (invoices that can be processed without human intervention). With OCR, first-pass rates drop dramatically to around the 50 percent range. Often, any accounts payable staff shifted from the front end of data entry tasks are simply reassigned to verification and validation on the back end – resulting in no significant savings or efficiencies at all.

Why do companies continue to pour money into OCR technology to solve the pain of handling paper invoices? There are several reasons – not the least of which is the revenue to be made by workflow vendors when they resell an OCR license. But, the primary reason has been the lack of an affordable, more reliable alternative.

The simple truth is that e-Invoicing has become a viable, more affordable alternative. As more companies cite successful implementations, e-Invoicing is quickly becoming the better solution for accounts payable professionals, leading to more mainstream adoption.

Barriers that have historically limited the adoption of point-to-point approaches like EDI – complying with strict data standards and lengthy implementations – have largely been eliminated by the leading 3rd party e-Invoicing networks. But, the other benefits of e-Invoicing, such as near-perfect first-pass rates, reduced cycle times to better manage cash flows, and the ability to more readily set up vendors for e-payment, are tipping the scale in favor of e-Invoicing.

The advent of e-Invoicing is changing the economics of organizations’ purchasing decisions, making it a disruptive force for OCR in accounts payable. Instead of choosing OCR first, companies will now choose e-Invoicing and then decide how they want to deal with any remaining paper. As a result, companies will no longer be able to justify spending hundreds of thousands on a solution that will ultimately not solve the paper problem or drive desired efficiencies.

Rather than using a hammer for all the wrong tasks, accounts payable “carpenters” will now have the screwdriver their departments have long been looking for.