For many accounting and finance professionals, combing through invoices, receipts, and financial statements involves squinting at blurry scans and deciphering handwritten notes in order to manually enter data into an accounting system or spreadsheet.
Optical character recognition (OCR) can transform this process, extracting the data trapped in PDFs, scans, and pictures and converting it into machine-readable text that can be edited and searched. OCR preprocesses these files to separate the light and dark areas in order to distinguish the text from the background. Then it uses pattern or feature recognition to identify and extract text based on templates or recognizing the distinct features of each character.
Since finance and accounting teams work with large volumes of paper and digital documents every day, they can leverage this technology to efficiently complete tedious data extraction, save time, and reduce human errors. Let’s dive deeper into how OCR is transforming financial data management and why combining OCR and AI actually provides even more powerful, accurate data extraction.
How Accounting and Finance Teams Benefit From OCR
OCR technology offers an improved solution for extracting data across a wide range of documents and workflows.
- Reduces Manual Data Entry
The most obvious benefit of OCR is the significant reduction or elimination of manual data entry. Sage found that manual data entry is a major pain point for 63% of accountants, and data backs this up. In the 2021 Airbase Annual Benchmark Survey of Finance Professionals, 38% of respondents reported their teams spend more than 25% of their total time on manual tasks.
By automating this task, accounting and finance teams can focus on more valuable activities like data analysis, compliance, and strategic planning. These types of tasks are also more engaging and interesting for employees, which can lead to greater employee satisfaction.
- Improves Data Accuracy
By automating data extraction, OCR reduces the risk of human errors. This is especially crucial in finance and accounting, where accuracy is paramount. By reducing errors, companies can avoid costly downstream consequences such as inaccurate payments, reporting, and forecasts.
OCR is highly accurate when applied to clear documents and images. While its accuracy decreases with low-quality images and handwriting, companies can overcome this by using a solution like Instabase that leverages both OCR and generative AI.
- Easily Scales With Your Business
As businesses grow, so does the volume of financial data that needs to be extracted. Hiring more employees to handle this is slow and expensive. OCR technology instantly scales to handle large volumes of documents and scales back down when the volume of work decreases, enabling companies to hold off on hiring or reduce the number of new employees they need.
This scalability is particularly valuable during seasonally busy periods such as tax season, financial audits, and the end of the fiscal year, since OCR alleviates some of the repetitive and tedious extra work that occurs during these times.
4 Use Cases for Finance and Accounting
Finance and accounting teams are constantly inundated with a deluge of paper and digital documents — invoices, receipts, financial statements, tax forms, and more. Since manually extracting data from these documents is a laborious and error-prone process, there are several different use cases where OCR can be applied — here are just some of them.
Accounts Payable
Businesses often grapple with a never-ending stream of vendor invoices. Historically, each invoice needed to be meticulously reviewed, and key details, such as the vendor name, invoice number, date, line items, and total amount, were manually entered into the accounting system. With the power of OCR, invoices can be simply scanned or uploaded and automatically converted into data that can be exported into accounting software.
Expense Management
Expense management has long been a thorn in the side of finance teams. Employees submit a hodgepodge of receipts, credit card statements, and other documentation, requiring painstaking manual entry of each expense. OCR alleviates this burden by extracting the details from these documents, which can then be copied and pasted or automatically populated into expense management software.
Financial Analysis
Financial analysts can also reap the benefits of OCR. Extracting data from dense financial documents, such as income statements, balance sheets, and cash flow statements, is a laborious task rife with potential errors that can have major downstream effects. With OCR, this data can be swiftly and accurately extracted, making it easier to integrate the data into financial modeling tools and spreadsheets. This also empowers analysts to focus on higher-value activities like finding insights and advising on strategic decisions.
Tax Preparation
Tax season is an arduous period for finance teams, as they need to process a multitude of tax forms, such as W-2s and 1099s. OCR makes tax season easier by extracting pertinent information from these documents, reducing the risk of errors and enabling more efficient tax preparation and filing.
Easily Implement OCR With Instabase AI Hub
While OCR solutions are helpful in digitizing financial data, they face challenges when dealing with complex document layouts, handwritten text, or low-quality scans. These limitations can lead to inaccurate data extraction and require manual intervention. Solutions that combine OCR with AI solve this problem by using AI to understand the context of the text and intelligently resolve any characters that can’t be clearly identified.
Instabase AI Hub empowers finance and accounting teams to extract all types of data from complex financial documents with unparalleled accuracy due to its use of both OCR and generative AI. This is incredibly valuable because visual elements like tables, checkboxes, and signatures are important and common components of financial documents. OCR isn’t capable of extracting these elements. However, when OCR is combined with layout awareness and vision AI models, teams can capture and use this data. Instabase provides this ability out-of-the-box, whereas other solutions typically require users to train the AI model to recognize these elements.
AI Hub also offers a more comprehensive solution for data and document processing than OCR tools. The pre-built applications in AI Hub can accurately extract data from large volumes of documents as well as summarize content, analyze data, perform calculations, categorize documents, and refine and validate data. Anyone can use these apps through natural language prompts. There’s no training, technical skills, or implementation required, so accounting and finance teams can get immediate results.
Finance and accounting teams will find two apps in AI Hub that are particularly useful for data extraction: Converse and Build.
Instabase Converse
The Converse app allows you to upload or take a photo of a document and extract its contents with remarkable accuracy and flexibility. Using natural language, you can specify the content that you want to extract and even format the extracted text.
Additionally, Converse helps you work with your financial data and unlock insights from it. For example, you can have Converse identify the line items that are over $500, calculate the compound annual growth rate (CAGR), or convert all of the invoice totals to another currency — the possibilities are endless.
Instabase Converse is ideal for ad-hoc document processing needs when you have one or a few documents to extract data from.
Instabase Build
While Converse excels at ad-hoc document processing, finance and accounting teams have multi-step, repetitive workflows for processing large volumes of financial data that don’t just involve data extraction. This is where Instabase Build shines. It provides tools to create automated workflows, which you can then share with the rest of your team or organization.
Build has several features that help streamline document processing for finance and accounting teams.
- Automated workflows: Create automated workflows using natural language prompts. These workflows can include data extraction and subsequent steps like data validation and refinement, enabling teams to automate entire workflows and not just the initial data extraction. You can also customize their workflows to meet specific business requirements. For example, validating data against your databases or standardizing data to match the schema of downstream systems.
- Scalability: Build is designed to handle large volumes of documents, making it particularly suitable for mid-market and enterprise organizations.
- Integration: Integrate the workflows that you create in Build with your existing systems and applications via API. This ensures that downstream systems will have clean, accurate data and allows employees to continue working in the systems that they’re already familiar with.
Leverage OCR and AI to Automate Financial Data Extraction
Use Instabase AI Hub to easily extract data from any volume of documents and automate your data processing workflows.
