Finance teams at organizations often spend hours processing invoices in various formats and inputting that data into their ERP or accounting systems. Although this process is inefficient and prone to errors, Gitnux reports that 57% of organizations still manually key in their invoices, and 47% identify manual data entry and inefficient processes as their biggest accounts payable pain points.
A common solution that partly addresses these inefficiencies and reduces errors is optical character recognition (OCR) for invoice processing.
In this article, we’ll explore OCR, how it works for invoices, and how combining OCR with AI can take your invoice processing to the next level. We’ll also show you how to use Instabase as an AI solution for invoice processing to extract invoice data and easily automate your workflow.
What Is Invoice OCR?
Invoice OCR technology uses OCR to extract critical information from your invoices, such as vendor name, invoice number, date, and total amount, and then converts it into machine-readable text.
It works by scanning the invoice image, identifying the text characters, and converting them into data you can edit, copy and paste, or export to other applications. Invoice OCR saves companies the time and effort of manually entering invoice data, reduces errors, and helps process invoices much faster.
How Does OCR Invoice Processing Work?
Here’s a typical workflow for using OCR for invoice processing:
- For paper invoices, scan them first to obtain an electronic file. Upload invoices to your OCR solution.
- The OCR solution identifies characters in the file and converts them into machine-readable text using pattern recognition to match characters against known characters or feature detection to recognize distinct features for each character.
- Users copy and paste or export the extracted data into the end system. Some OCR solutions may even support integrations with third-party systems, allowing users to transfer the extracted data to downstream systems automatically.
Combining OCR With AI for More Powerful Invoice Processing
While using OCR to extract data from invoices is more efficient than manual entry, it does have some limitations. The accuracy of the data extracted by OCR tools can vary, especially if the invoice scans are poor quality or have handwritten sections. OCR is also limited in that it only extracts the raw data — you still need to review, validate, and classify that data before entering it into your accounting system.
To overcome the limitations of OCR and fully automate invoice processing, you can combine it with AI. Here’s how AI enhances OCR:
Increased accuracy
AI understands context to extract data more accurately from poor-quality or complex invoices. For example, it can differentiate between “0” and “O” based on the surrounding text.
Handwriting recognition
Neural networks, a type of machine learning model, can recognize and extract handwritten text, which traditional OCR struggles with. This is because neural networks mimic the way the human brain learns. By training neural networks on large datasets, they can identify complex patterns and variations, making them much more adaptable and accurate in handling handwriting’s diversity.
End-to-end automation
AI can go beyond just data extraction. It can also classify extracted data, validate it, and route invoices for approval based on predefined criteria. This enables touchless processing, with employees only jumping in when the AI has flagged an issue or potential error.
Using Instabase for Invoice Processing
Instabase AI Hub is a generative AI platform that empowers users of all technical levels to leverage generative AI for document understanding and processing. Companies can use AI Hub to extract, summarize, analyze, and translate the content of any document. The Build app allows you to create custom repeatable AI workflows without coding to automate data and document processing, using capabilities beyond traditional OCR, such as text translation, data validation, and formatting.
Here’s how you can use Build to extract data from invoices:
- Go to aihub.instabase.com and select “Create an app.” Either create a free account or sign in to your existing Instabase account.
- Upload an invoice or several. Providing five documents is a good start, but the minimum is one document.
- Next, tell Build the type of document you’ve uploaded. In this case, it’s an invoice. Click on the label icon at the top of the right panel to create a document class. Enter “Invoice” as the class name.
- Click on “Reclassify documents” in the bottom-right corner. Then, click on “Add field” to start creating fields for each data field you want to extract.
- Enter a name for the data field you want to extract, such as the invoice date, invoice number, or total. You can also choose a field from the suggestions shown. If you’ve manually entered a field name, hit “Enter” on your keyboard to save it.
- After creating the field, you should now see that Build has identified the corresponding data in the document, the page where the data is located, and how confident Build is in extracting the field. If the results are correct, click on the “Save fields” button at the bottom of the right panel. If the result is not correct, you can click “Cancel” to create a new field with a different name. You can also try changing the data type, switch to a different model by clicking on the stars icon, or add a description.
- Repeat steps 4 through 6 to continue adding fields for each value you want to extract from the uploaded invoice. Hover over any saved fields to bring up options to copy the extracted value, edit the field, reorder the field, and delete the field. When you’re done adding fields, click on “Create app” in the top-right corner.
- Give your app a descriptive name and an optional description and icon. Then click “Next.”
- Select whether the app is ready to be released to others (production) or kept private (pre-production). Add in optional release notes and click “Create app” to save.
- Click “Open app” to immediately start using your app to extract data from multiple invoices at once.
- Click ”Run App.”
- Upload your invoices.
- Click on the run that corresponds with the files you just uploaded.
- You can now see all the files you’ve uploaded in the left panel and the selected file in the center panel. The extracted data is displayed in the right panel. You can double-check the accuracy of the output and see instances where no value has been found for a field.
- In the top-right corner, click “Export results” to select how you’d like to download the extracted data.
After building your app, you can use it at any time or integrate it with your systems via the generated API to further automate your workflow. Your apps are securely saved in your Instabase account, ensuring convenient access whenever necessary.
While traditional OCR can help automate invoice data extraction, it is limited in accuracy, especially with complex layouts and handwritten text. Combining OCR with artificial intelligence provides far more powerful invoice processing capabilities. AI enhances OCR by providing contextual understanding, improved handwriting recognition, and end-to-end automation from data extraction to validation and approval routing.
Instabase Build offers just this. It is a great solution that harnesses the power of AI and OCR for invoice processing. With its user-friendly interface and no-code approach, Build allows you to easily create custom apps that accurately extract invoice data, regardless of format or layout. Its powerful AI capabilities automate workflows, from data capture to approval cycles, transforming your accounts payable process into a strategic asset. You’ll be able to process invoices exponentially faster, with higher accuracy, and at a lower cost with Instabase Build, freeing your team to focus on higher-value work.
Automate Invoice Processing End-to-End
Extracting data from invoices is a breeze with Instabase Build.
