AP Automation Series: Levels of Data Capture for Ease & Efficiency in Accounts Payable

In our last post in our AP Automation series, discussed the elements of a basic content management system, including invoice capturing, indexing, workflow and storage and how to implement as a very easy first step in the electronic AP Process.

In this post we will provide an overview of how various technologies can read data and how this information is shared. Additionally, we’ll explain  basic capture with structured templates to more advanced technology like barcode readers, Optical Character Recognition and Intelligent Data Capture, and the benefits of each.

Now that we understand the basic elements of a Document Management System, we can focus on how various levels of capture automation – from the very simple to more complex – can increase accuracy and shorten the invoice approval and payment cycle as you move to automate your AP process.  Many departments suffer from lengthy approval cycles, mismanagement of paper invoices and the large number of errors that cause delay – all problems that can be solved by implementing automated data capture.

As with any new enterprise technology, the key is finding the right solution for your business, industry and workload. From single invoice scanning to a fully-automated enterprise solution, there are a number of ways to get the job done and get you on the road to improving invoice management. When invoices are automated, they become more than just a piece of paper. They become searchable sources of key financial data at your fingertips.

By relieving the burden of manual data entry, “stare-and-compare” matching, and other routine and repetitive activities, automation helps your staff improve productivity and focus efforts on value-added activities, like exceptions processing, negotiating early pay discounts and performing higher-level financial analysis functions. Advanced data capture and intelligent, well-planned workflow techniques can make AP teams more productive from day one.

But let’s be realistic, too. Automating any business process takes time, and often the smartest approach is to phase in changes to increase your chances for long term success. With data capture, there are simple ways to begin that can have immediate benefit.

Basic Capture: Scanning

Let’s start with the most simple, straightforward data capture available today – scanning.  The ability to scan paper documents and store them in digital form and is at the heart of relieving the burden of paper in the AP process. Readily available scanning hardware and software captures document images and allows the user to manually title the scanned documents.  Documents are typically saved to a local computer or network folder.

From there invoices are routed via e-mail as attachments for attention and approval. Many companies have already found this to be an easy first step to an automated AP process.  This simple approach provides some basic insight, accountability, auditability and visibility into the process that is simply not possible using a paper-based workflow.

For smaller companies, scanning is a way to start automating with a very low initial investment. You can enter simple information about the invoice utilizing reasonably priced hardware & software.  Batch scanning provides the same benefit and also allows more than one invoice to be scanned at a time. You can scan all invoices for a particular vendor, or type of vendor via a batch process. Simple drop down menus can be utilized to identify invoice content for easier retrieval, and can also be utilized to key in data about the invoice.

When you start to store invoices electronically you can save time, cut costs and gain insight by allowing multiple users to access a document at the same time. This alleviates the burden and costs of managing paper – mailing, faxing, copying, etc. and invoices can be routed more quickly via email or when accessed on a company network. Still, key information from the invoice needs to be keyed into the system manually, making it a labor intensive process.

Starting with data capture that is simple still offers benefits right off the bat. But as your business grows, you may need additional automation to help alleviate having to scan and manually enter data. Visibility is critical to increasing productivity.

But automating workflow is where the real power is.

Intermediate Capture: Barcoding

Barcoding is a process that is particularly effective when batch scanning. Barcodes can be used as a separator when batch scanning in order to provide additional information on the invoices as they are scanned into the system.

Barcodes are actually put on pages to separate and identify documents. For example, barcodes can be populated with metadata like vendor name and address so the software is actually reading the barcode in order to categorize the invoice.

Barcoding when batch scanning is more accurate than paper invoices for data entry, and can quicken the pace for businesses that may have a sizeable number of vendor invoices to process. Information from the barcode is stored with the invoice for easier storage and retrieval, and a reduction in redundant data entry.

For the largest organizations, however, barcoding and batch scanning can still be a labor intensive process as it requires significant time if you are processing many invoices.

Advanced Data Capture: Optical Character Recognition (OCR) and Intelligent Data Capture (IDC)

Optical Character Recognition (OCR), and Intelligent Data Capture (IDC) have changed the way many leading AP departments process their AP by taking the guesswork, labor and errors out of the invoice process. Both OCR and IDC have built in intelligence to “teach” the software how to recognize, classify, extract and store key information.

Optical Character Recognition (OCR) can automatically read data and then populate specific fields in a document management system. When used correctly, OCR can capture all relevant keywords. Rather than manually enter the information, key bits of data – like PO number, amount or date, for example – are digitally captured and populated in a variety of index fields. Pre-set templates for commonly structured documents enable information to be automatically entered into the system. OCR can significantly reduce errors, accelerate the entire invoice process and ensure all securely stored data is available for instant retrieval.

apblog1

Source: PayStream Advisors’ 2015 AP & Working Capital Report Q2 2015

Full text OCR reads everything and although it can eliminate data entry, you need to be careful that you aren’t crowding your system with too much useless data. Without a well-thought out indexing structure full-text OCR can make it very difficult to retrieve the right information quickly.

Zonal OCR is another basic capture process with intelligence built in. For example, if you have vendor name, address, phone, invoice amount and remittance date all in the top 1/3 of the invoice, you can set the OCR to read only the top 1/3 and import only those fields with information that is important to you, making it easier to index and search.

You can also add “self-learning” into OCR. By creating specific templates, you can “teach” the software – for example, that an invoice is from a specific vendor.  Essential information from a vendor for a specific template will be located in a defined place. The software will look in the right place for specific words, formats or anchor text on claims, invoices and other documents.

For larger organizations with many vendors, Intelligent Data Capture (IDC) can process greater volumes of data for maximum efficiency. At the highest level, these systems can integrate with an existing accounting or ERP system for 2, 3 or 4-way matching processes. Business rules can be applied to add automation to the process from start to finish. For example, you can enter vendor name and prompt a look up in the ERP system to locate YTD purchases. You can also automatically pull in the GL codes for a vendor for a smooth integration with your GL system.  There is enormous potential for workflow rules to automate every step of the AP process when using IDC.

Source: PayStream Advisors’ 2014 IWA Benchmark Report, Q4 2014

IDC also allows you to capture information from any file type – JPG, PDF, TIFF, etc.  With smart data extraction, the system knows how to pull the right data and populate your ERP system and/or other external business applications. Once the data enters the system it is automatically indexed for easy retrieval and sharing. Advanced workflow rules can also be deployed to eliminate most manual processes and data entry, and provide a detailed audit trail for security and accountability. For example, invoice/PO matching workflow can be automated to reduce the “stare and compare” verification of invoice vs. PO and receipt data with automated real-time ERP validation. Tasks that used to take up to 3 weeks can be done in less than 1 day.

Ultimately, initiating an automated AP process by compelling vendors and suppliers to submit invoices electronically would be the ideal situation. The time and effort to scan incoming invoices and documentation would be eliminated altogether. Getting all of your suppliers and vendors on board may take some time, but in our increasingly connected world, is becoming more of a reality. By starting with a few vendors who are willing, you can quickly show an ROI that may help onboard additional vendors.

Where to begin?

When you start with even the simplest data capture, you are on your way to improving your AP process. You can always move to intelligent data capture at a later time, and ultimately move to receiving invoices electronically when all of your vendors and suppliers are on board. Even the most basic DMS can save money by reducing the costs associated with printing, mailing, copying and filing paper.

With a simple and intuitive interface, the right document management systems save significant time by efficiently moving from one task to the next – regardless of the application. Time spent tracking down documents can be better spent on more important business priorities. With centralized storage, documents like invoices and reports are accessible anytime, anywhere from any device. With data extraction, the system identifies key information to allow any number of automated processing workflows, dramatically increasing productivity.

Start where you have the most pain and go from there. Do you need to simply get your invoices into your system electronically? Then start scanning. Do you need to speed up the process? Then look at batch scanning, OCR and workflow. Or maybe you have those systems in place and need an enterprise tool to promote greater efficiency and collaboration in your AP Process. Move to IDC, and get your vendors on board by sending in their invoices electronically.

And remember, you need to find systems that can grow with you – with the ability to add on functionality and capacity as you need it. As your business evolves, your AP needs evolve, too.  Utilize the information at your fingertips by exposing the valuable data that is locked in all that paper.

Be sure to stay tuned for the rest of our series: