[As published in the EA Journal November|December 2019 issue.]
When it comes to invoice and payment processing (AP) automation, there is a lot of reference to optical character recognition, or OCR as it is commonly referred to.
It’s a buzzword that accounting professionals have likely heard about. What is it exactly? The mechanical or electronic conversion of images of typed, printed, or even handwritten text, into machine-encoded text. The text can come from a scanned document, a photo of a document, a scene-photo (for example the text on signs and billboards in a landscape photo), or from subtitle text superimposed on an image (like from a television broadcast).
Simply put, it is technology looking at an image or file and being able to identify what is on it; turning a picture into words.
But it is the next layer, smart data extraction, that understands and processes the text from the OCR to transform it into relevant data. In other words, it takes the words and does something with them. This is critical to know because OCR by itself does not know what to do with the information it reads. This is where the “smart” in smart data extraction comes in. And it’s important to differentiate the two.
What do we mean by “smart?” As it pertains to advanced AP automation solutions, smart data extraction technology leverages OCR to read information from scanned/photos of paper invoices or PDFs received via email. It then interprets the information, extracts the relevant data, then applies it to the appropriate field in the application to be reviewed and sent for approval. Finally, the data is exported to an ERP (enterprise resource planning) or legacy finance system. If there are pieces of data that cannot be interpreted or read, the system learns over time how to extract those missing pieces. This is referred to as machine learning and is powered by A.I. And it’s what allows processors to avoid repetitive tasks.
Some AP automation solution providers might claim OCR technology. Be careful and dig deeper to find more information. Many apply human, or manual, extraction, outsourcing to a third party—also called third-party verification. OCR extraction that layers human verification uses people to put data read by the OCR into predefined fields. In this scenario where data entry is done by an outsourced firm—usually in a foreign country—it takes time as the data is being populated by people, typically 24 to 72 business hours. Kind of defeats the purpose of moving from a manual AP process to an automated process to save time, right?
What you really want to know when investigating AP automation solution providers is whether the solution has a complete technology, combining OCR (converting images to text), smart data extraction (transforming the text into relevant data), and machine learning (remembering the data and populating it into the applicable data fields each time the data is recognized). In other words, you are looking for a system that gets smarter the more you use it!
Why does this matter to enrolled agents? With cloud-based invoice processing (AP) automation solutions that offer technology for a complete end-to-end workflow, an audit trail of every action provides businesses and their auditors with visibility into “who did what, when, and where,” as well as the ability to monitor whether the proper validations took place. Cloud solutions also maintain a record of all changes to invoice data to help identify the user who made changes to an invoice if a question should arise. This also fortifies the effectiveness of internal and external audits, helping to avoid financial misstatements. When audit time comes, the original document image, corresponding audit trail, and history of any modifications to invoice data are readily available to authorized users at any time.1 When representing taxpayers before the Internal Revenue Service for tax issues, EAs are armed with comprehensive and accurate audit records.
There’s more to consider. Mark Brousseau, consultant, Institute of Finance Management (IOFM) spokesperson, and AP automation subject matter expert, puts it in perspective in a recent interview with The Knowledge Group. “Businesses today are expecting more from their AP function. They realize that if they can get at the information and data housed in their AP department, they can use it to support better management of their working capital, mitigate potential risk, and make more strategic decisions.”
Companies will have the ability to transform data into knowledge that can better inform their business decisions and streamline their business processes. And it’s made possible with smart data extraction, the most important feature of advanced AP automation solutions.
With advanced solutions, this functionality powers the next steps in the invoice and payment processing workflow. Once data is extracted from unstructured content and then validated, the system uses that data to automate other tasks like routing and approval.
And it includes comparing the data against existing records within legacy finance systems/ERPs. This results in fewer errors and eliminates duplicate documents and transactions.
With constant enhancements, no end user is ever involved to teach the software. The staff transitions from manual data entry and third-party verification to simply reviewing data extraction for accuracy. If there is a miss, the reviewer can click inside the application to quickly correct it and flag the miss.
Utilizing machine learning optimizations, the system will become more intelligent—smarter—over time, reducing the number of mistakes and increasing overall efficiencies. That will earn your AP department an A+!
1 Special Report: The Future of Accounts Payable: Digital, Profitable and Strategic. An AP & P2P white paper. © 2018 IOFM, Diversified Communications.
For more information about the National Association of Enrolled Agents and its publications and educational resources, visit https://www.naea.org/