Automated invoice processing can significantly reduce costs compared to manual invoice processing. It involves capturing invoices, extracting data using techniques like OCR or AI, validating the information, and routing invoices for approval before payment. Automating the invoice process improves accuracy, reduces processing time and human errors, enables on-time payments to avoid fines, and allows staff to focus on higher-value tasks. Selecting invoice automation software requires considering features like document classification, flexibility in file formats, processing speed, and integration with accounting systems. Overall, automating invoices can help businesses save substantial time and money compared to manual processes.
2. TABLE OF
CONTENTS
WHAT IS INVOICE PROCESSING?
2 way / 3 way matching invoices
Fields in an invoice
What are Invoices?
How invoicing processing works - Their role in business?
Manual vs automated invoice processing.
HOW TO AUTOMATE INVOICE
PROCESSING
Automated invoice processing workflow.
Data extraction methods from invoice - OCR vs AI vs
Deep Learning.
COST OF INVOICE PROCESS AUTOMATION
Invoice automation benefits
HOW TO SELECT AN INVOICE
PROCESSING SOFTWARE
Comparison amongst invoice processing automation
software
[Kofax, Nanonets, Rossum, Abbyy, Docparser,
Hyperscience, Hypatos, Taiger]
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6
12
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3. Invoice processing starts when an
invoice is received and ends after
the payment to that invoice is
made. It is nothing but the
handling of invoices by the
accounts payable team. Before
explaining the invoice processing,
let’s discuss key terminologies that
help explain the process much
easier.
the list of products and their prices
at which the buyer agreed to pay
the seller.
In general, there are two types of
invoices based on the purchase
order.
A purchase order (PO) is issued by
the buyer to the seller. It contains
What are Invoices?
An invoice or a bill or a statement
is a commercial document issued
by the seller to the buyer after
fulfilling the buyer’s order. The
invoice contains the details of the
service offered or goods delivered
to the buyer and the prices of
those services/goods at which the
buyer agreed to pay earlier.
In simpler terms, an invoice is
nothing but a request of payment
by the seller for the service
provided or goods delivered to the
buyer.
i) PO-based invoice
During budgeting, business leaders
know about the key goods and
services that are required to turn
business into profits. So, they
include the budget for these
goods/services while budgeting
itself.
Whenever there is a requirement
for that particular service or
goods, the business sends the PO
to the vendor after proper
approval. This PO is the official
document issued by the buyer who
is committing to pay for the
product or service delivered in the
future.
ii) Non-PO-based invoices
Non-PO based invoices are also
called expense invoices. These
invoices arise because of the
payments outside the budget.
State, federal taxes, permits fee,
etc., are examples of expense
invoices.
Invoicing Processing
What is Purchase
Order(PO)?
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Chapter 1 - What is invoice processing?
4. 0 3
Invoices may be sent in a paper or pdf
format. Once an invoice arrives, the
account payable clerk checks and ensures
that the received document is an invoice.
Later, an account payable clerk classifies
and sorts the invoice based on the type or
department. After invoice classification, it
is sent to the account payable processor
responsible for the invoice. AP processor
is the person who placed that particular
order.
The invoice is matched against the
purchase order to confirm that the
amount is paid accurately. The amount in
the invoice is compared with the goods
received to avoid discrepancies.
After verification, the information in the
invoice will be entered into the
accounting system. It can be done
manually or automated.
Entering the data manually consumes a lot
of time. The human error involved in this
process is high. That’s why, it is always
better to choose an automated way than
to do it manually. The automated system
not only reduces human error but also
increases the speed of the data entry
process.
AThere will be a group of people who do
the approval process. But it is better to
deploy an automated system to avoid
frauds. Once the approval process is
completed, the payment will be processed
Step 1: Receive Invoice
Step 2: Verifying the
Information
Step 3: Data Entry
Step 4: Approval and
Payment
How Does Invoice Processing Work?
Invoice processing plays a major role in the business. Without effective invoice
processing, there is always a chance for late payments, missing invoices,
payment dues, and frauds. With a growing business, invoice processing
becomes much harder to handle with the manual process, resulting in various
errors. Now let’s see how a typical invoice processing works.
5. 2-way / 3-way Matching Invoice Processing Methods
Invoice Owner
Subject - This indeed tells that the
particular document is an invoice
Sales Order
PO (Purchase-Order)
Taxes (GST, VAT, Excise duty, etc.)
Date of the Invoice
Sales Commission
Account Name
Contact Name
Status
Created By
Modified By
Billing address/Shipping address
Quantity/Price/Product name
Total
Terms & Conditions
Description
Matching invoices is crucial in invoice processing to avoid discrepancies. If the
invoice is matched with the purchasing order, then it is called a 2-way
matching process. If the invoice is matched with the purchasing order and
goods/services receipt, then it is called a 3-way matching process.
The 3-way match process is more efficient but it takes a lot of time when done
manually.
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A typical invoice states the below details:
Fields in an Invoice
NAME: JANE M. DOE
DATE: 30/08/2020
INVOICE: 2NIF123456789
TOTAL: $4177.00
6. Invoice can be processed manually or the process can be automated. It depends
on the number of invoices you’re processing a month. If you’re processing
thousands of invoices per month, it’s high time to look for an automated
solution. Let’s see how automated invoicing solution has an upper hand over
manual processing:-
Automating invoice processing has numerous benefits over processing it
manually. Let’s see how they’re different:-
MANUAL INVOICE
PROCESSING
There is a chance of fraud.
The 3-way matching
process is hard to do.
The 3-way matching process
is made easy.
Data validation and
verification rules reduce the
chances of any fraud.
Automated Invoice Processing
is 10 times faster than manual
processing.
The whole processing is
done manually by a group
of people.
It is prone to human errors. Accuracy over 98% .
Manual Process is slow.
A lot of time and money is
invested.
Because of the slow
processing, payments can
be delayed.
Payments are scheduled on
time.
Saves time and labor costs.
Invoice process is done by
intelligent OCR solutions.
AUTOMATED INVOICE
PROCESSING
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Manual vs. Automated Invoice Processing
7. Automated invoice processing is a method where automation software is used
for data extraction from invoice and to populate the extracted information into
an accounts payable system, and process invoice data for accounts payable. If it
is effectively used, automated invoice processing saves a lot of time and money
for a business account payable department.
Automation invoice processing can be used to automate key functions like data
entry, filing and processing of data. When the above operations are taken care
of through automation, then the account payable professionals can be
proactive and can concentrate on other focus areas. Automating invoice
processing not only decreases the manpower but also improves the accuracy
and invoice processing speed.
According to Forbes, 83% of the companies felt artificial intelligence as a
strategic priority. Automating the invoice processing generally, does the
automation of price matching, manages purchase orders, data entry and
streamlines the workflows.
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Chapter 2- How to automate invoice processing
8. Automating Invoice Processing involves four phases. In this article, we will
explain all of these phases in detail in a lucid manner. Let's get started
Automated invoice processing workflow
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Phase - 1: Capturing
Invoice
Phase - 4: Approval
Routing
Phase - 2: Data Entry
and Coding
Phase - 3: Validation
The first step is receiving an invoice and
capturing the data in it. An invoice may be
received in any format (paper format, pdf,
email or photocopy). So, for data
capturing the software needs to use
multiple capturing methods. With the help
of intelligent data capture mechanisms,
data can be entered into the system. After
capturing the data, the next step is data
entry and coding.
After validating, the invoice is forwarded
for approval process before payment is
made. This process involves many steps.
If the company does this manually, the
invoice papers may sit on the employee's
desk for many days before it was
approved. During the approval routing,
ERP systems are used to manage the
notifications.
In this phase, the AP professional goes
through the extracted data and enters
that into the ERP system.
The automation tool also has a coding
system which tracks debits and credits.
After data entry and coding, the software
applies a 2-way or 3-way mechanism to
validate the data. After successful
verification, the next phase would be
approval routing. But if there is an issue
in the validation process, the system
routes it to the AP for manual
verification.
9. Summing it up, the automated invoice solution works in these steps:-
1. The invoice (in any format or layout) arrives.
2. The automation solution extracts invoice info.
3. The program later validates the details with business laws.
4. Once confirmed, it is sent for approval
Now, let us have a look into different data capture methods used and which
one might suit you.
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i) Template Based Optical Character Recognition (OCR) method
OCR uses pattern recognition to extract the data from invoices. It accurately
captures the data from invoices. This technology is best suitable for the areas
where the document format changes are less (ex- postal services, sorting
systems, business with less or the same vendors). This method is suitable for
companies that have less number of vendors. The reason is that OCR has to be
coded with rules to detect a particular type of invoice. As the number of
vendors increases, it gets difficult to develop templates as it is a time-
consuming process.
Data extraction methods from invoice
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ii) AI-Based or Cognitive Extraction
iii) Combining Machine Learning & Template-based approach
AI tries to mimic the human decision-making process with the help of machine
learning and deep learning. In the cognitive data capture method, artificial
intelligence is used to automate invoice processing. Cognitive data capture
method is suitable for a company that receives invoices with different formats.
This is a self-learning technology. With the increase in the processed
documents, the accuracy of the system improves. There is no need to create
templates like OCR technology.
This method combines both worlds. It remembers the vendor based templates
without the user specification and defaults to a machine learning algorithm
when a new vendor invoice arrives. There is no need to create a template when
a new vendor arrives. The software does this part in the background without
user interference. Like AI-based extraction, this technology also improves its
accuracy after using it for a short period.
11. OCR BASED
EXTRACTION
COGNITIVE DATA
CAPTURE
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Less human intervention is
required. But cannot be
automated completely.
Best for the companies where
the invoice format does not
change frequently or no new
invoice formats are received.
Hiring operators cost to
code rules when a new
template is introduced.
AI gets adapted to new types
of invoices and there is no
need to code new rules.
That’s why this method costs
less in the long run.
High accuracy for regular
invoices. But fails when a new
format invoice is introduced
Ideal for repetitive similar
format invoices from less
number of vendors.
Neural networks learn and
get adapted to different
invoices. Accuracy improves
in a short period.
Ideal for processing invoices
where templates change
frequently from one invoice
to another.
Best for the big companies
which have many vendors
and invoice format changes
frequently.
Creation of one template may
take 10 mins up to 1 hour
No need for template
creation.
Least or no human
interference is required.It can
be automated completely.
12. Now, let’s take this opportunity to answer the question - “Which Data
Automation method should you adopt?”
The answer is straightforward if the company has 500 or fewer vendors one
can go for the traditional OCR method because of its high accuracy. But if the
company has more number of vendors then it is best to go for Cognitive
extraction software or for the one which has mixed capabilities(the software
which can match both template and cognitive approach).
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OR
Cognitive Data Capture
13. According to the International Institute of Finance and Management, invoice
processing costs anywhere between $1 and $21. This cost depends on the
method of invoice processing the company is deploying. If the company adopts
automation, the cost may be on the lower band. On the other hand, processing
invoices manually can cost you from $15 to $21.
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Chapter 3 - Cost of invoice process
automation processing
Let us look into factors that drive higher invoice processing costs.
Employee costs - If a company uses manual methods for invoice processing,
it has to go through various tedious steps before payment gets approved.
This involves different levels of employees to process the invoice from data
entry to payment approval to maintain full-time employees to do these
processes without mistakes.
Factors driving higher costs
14. No 3-way matching technology - 3-way matching is essential to avoid
discrepancies in the process. Without an automated 3-way matching
technology, more resources are required for the account payable team to
manually process the matching. This ultimately drives not only costs but
also human errors.
Paper-based approval process - Usually, AP teams have a limit up to which
they can approve the payments. If they receive any high payment invoice
above this limit, they need an approval before making the payment. If the
company is using a paper-based approval process, the task becomes
cumbersome. The reasons are plenty. For example, on budget, owners might
be on leave or on vacation (where it's hard to send papers for approval). The
paper approval process costs not only money but also a valuable time for
budget owners.
Storage costs - If a company is using manual processes, it needs to store
the approved papers for future audits, securing these important papers’
costs. These costs can be avoided if the company deploys an automated
system.
According to the Institute of Finance and Management (IOFM), 63% of
companies state that reducing costs involved in invoice-automation is their
priority and this is made possible with intelligent automation software. By
adopting automation, tedious tasks such as data capturing and manual data
entry can be avoided. AI or cognitive based data extraction costs 20 cents to $
3 per invoice.
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Invoice automation benefits/Ways to cut invoice
processing costs
15. Reduction in Employee & Back-office costs - Because of automation,
human resources involvement will be reduced. Since, there is less human
involvement, the costs involved with full-time employees can be reduced
drastically. Invoice automation can help in eliminating back-office costs.
Not only that, automation prevents you from becoming prey to frauds.
Scammers try to exploit weak spots in the manual AP process such as poor
control or lack of communication. With an automated invoice processing
solution, fake invoices can be detected, and the account payable team can
focus on high-value activities without worrying about any fraud.
Reduction in human errors saves money - Automating invoices can reduce
human errors and improve the accuracy of data extraction. Through manual
invoice processing, there is an error margin of 10%. The manual approval
process, invoice handling and error corrections take up to 61% of invoice
processing costs.
Late payment fines can be skipped - Since the manual process is very slow,
sometimes payment dates are made after the due date. Late payments can
incur fines and this can be avoided through automating invoice processing.
Improves relationships with vendor - Intelligent automated software helps
to make payments on time. This improves the relationship with the vendors
and there is always a chance of getting some discounts.
APP2P network compared the costs involved in manual and automated invoice
processes. The results stated that there is an 85% reduction in the monthly
costs with automated invoice processing. It is a lot of money which can be
saved. Besides reducing costs, automation can improve employee productivity.
With the right technology, there can be a dramatic reduction in invoice
processing costs. In this competitive world, businesses should realise the
operating costs involved in manual invoice processing. They should minimize
these costs by shifting to intelligent automation software to save money and
valuable time.
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16. Once you’ve decided to replace the manual invoicing with automated invoice
processing, the real question is to figure out which features do you need in
your automated solution based on which to find out which solution to go for. In
this chapter, we’ll answer all the questions.
To start with, here’s the list of features you should be looking into while
choosing the invoice automation solution:-
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Chapter 4 - How to Select an Invoice
Processing Software?
Efficient Document Classification Capability: Businesses receive multiple
documents and not of them are invoices. It can be a contract statement, HR
application form, or expenditure statement. Any document processing
software should be able to classify these documents and assign them to the
respective department.
17. Flexibility in formats: Companies often have different requirements for
different file formats. The software should have the capability to scan
information across several standard file formats.
Speed: Large organisations receive a lot of invoices in a month. If the
software cannot handle the load and becomes slow, it affects the payments.
So, one should look for the processing speed of the software.
Accuracy: Now you got speed, but what about accuracy? A software that
processes with a great speed but lacks accuracy is not worth investing in.
Adaptability: For small organisations with limited number of vendors
adaptability is not a problem. They can opt for traditional template-based
OCR software. But if the organisation is large enough processing thousands
of invoices in multiple formats, any template-based OCR technology won’t
do the job. In this case, invoice processing software with AI capability
comes in handy. Neural networks use machine learning and deep learning
and become adaptive over time, handling different kinds of documents.
Cloud Support: The software should have cloud support. The reason is
simple. In large organisations, during audits, it becomes difficult to gather
the required documents. So, if the software supports the cloud technology
then it becomes easy to back up and store documents.
Security: With technology advancement, come cyber threats. So, one
should be careful about the permissions that are given to the processing
software. There should be tracking tools to monitor individuals with access
to an organisation's private data.
Integration Capability: Invoice processing software should have integration
capabilities. Imagine software that cannot integrate with the ERP system. In
this case, again an AP professional should enter all the data into the system.
To avoid this scenario, one should choose software with integration
capabilities.
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18. Data Privacy Policies: This is not directly related to the software but it is to
ensure that invoice automation company that you’re going for, complies
with business privacy policies. Also, check for the duration for which the
invoice processing software stores the data. The reason for this is that
some data needs to be stored for audit purposes while others need to be
deleted because of privacy policies.
Pricing: Along with all the above capabilities, the price of the software
should be reasonable. It shouldn’t be exorbitant.
Now let us look into the features and services of some of the invoice
processing automation software.
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Multiple learning mechanism including one shot learning, rule based
learning, and deep learning
Highly customizable when it comes to editing document fields
Docsumo allows creation of new documents.
Document auto-classification and auto-assign features
Accuracy over 99%
Comparison of invoice processing automation software
Docsumo
19. It offers cognitive capture using AI.
It supports various ecosystems using integrations.
It is capable of task automation and different workflows.
Kofax has a global presence.
It can perform multi-level validation.
It is powered by Coupa which uses machine learning and AI to detect
invoice frauds.
The company provides API to integrate with different systems.
They also offer custom workflows.
Nanonet uses artificial intelligence to extract data from invoices.
With the help of nanonets, one can maximise backoffice RIO with the help
of AI-assisted UI.
Innovative AI engine-Original research-based artificial intelligence to
extract the data.
Intuitive validation UI - Simplifies and improves the human verification
process.
Powerful reporting engine - Measures the real time performance.
Superior extension environment - Assures effective integration .and
adaptation
Award-winning AI-driven neural networks to provide better accuracy.
Multiple approaches of functionality for the location of invoice data in
complex documents.
Out of the box PO processions – additional modifications not required.
Kofax
Nanonets
Rossum
Abby Flexi capture
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20. Need to create and train custom document parsers according to the
requirement.
Supports the cloud.
Offers online invoice processing software.
It can be integrated.
This software does not use AI.
This software is like a typical template-based OCR.
Converts unstructured data into structured data with less human
intervention.
Not completely automated.
Human intervention is required.
Provides accuracy of 99.5% Platform integrates with other systems.
Uses deep learning for invoice processing
Provides features like auto-accounting using AI-powered automation.
No need for rules and templates because hypatos uses machine learning for
adaptability.
Docparser
Hyperscience
Hypatos
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Docsumo’s AI software with Intelligent OCR technology helps you convert
unstructured documents such as pay stubs, invoices and bank statements to
actionable data. Works with documents in any format with minimal setup.
Docsumo intelligent software is 50 times faster than humans. It helps not only
in reducing 70% of processing costs and but also in attaining 99% accuracy.
Docsumo can easily be integrated with your current workflow and when it
comes to security docsumo offers enterprise-grade data protection.
So, what are you waiting for? Talk to us today, to automate your invoice
processing workflow!
Where does Docsumo stand in this picture?