What is Optical Character Recognition?

Exploring the use of OCR in accounting and finance.

Essential business functions like accounts payable, which often rely on largely manual processes, are becoming increasingly digitized and automated. Lots of technologies are employed in the automation process, from artificial intelligence and machine learning to GL smart coding and optical character recognition. And it’s this last technology we’re going to explore in today’s blog post. What is Optical Character Recognition, how does it work, and how can it be applied in accounting and finance?

Read on to find out.

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OCR explained

Optical Character Recognition (OCR) is a technology used to process information from images and other documents, recognize text and written information, and convert it into editable, searchable data. The latest, most advanced OCR technology uses machine learning to improve over time ― 'learning' from experience to become more accurate and capable of recognizing nuance in various styles of text, and even handwriting. OCR makes it possible to automate data capture from a variety of previously non-editable sources.

Here's how it works:

STEP 1: Image capture

The process begins with a digital image. Images can be captured via a camera, a scanner, or any device capable of rendering a digital image such as a PDF or JPEG.

STEP 2: Pre-processing

Some images may need to be processed before OCR can take place. Noise reduction, image enhancement, and other edits may be necessary to ensure the image is of sufficient quality for OCR to recognize the text.

STEP 3: Segmentation

The OCR process itself begins when the software analyzes the image to identify blocks of text, words, and individual characters. The image is 'segmented' into regions that contain text, and regions that don't.

STEP 4: Recognition

This is OCR's party piece. The software uses complex algorithms and pattern recognition to identify the shapes and patterns used in written text. OCR can distinguish text from other shapes, images, or symbols ― helping to separate the useful information from irrelevant data.

STEP 5: Post-processing

Once the text has been recognized, various post-processing techniques are applied to improve accuracy and clarity. These might include simply formatting the text for readability, or using machine learning to identify errors made during the recognition phase.

STEP 6: Output

Finally, the OCR software outputs a searchable, editable, machine-readable text document that can be utilized at the user's discretion.

OCR in accounting and finance

In accounting and finance, OCR is used to recognize text and numerical fields in financial documents, such as invoices, purchase orders, and receipts. Accounts payable is a historically manual process, and data entry is a huge part of the job. AP clerks are expected to process data from a variety of sources, and often, from literally hundreds of invoices every month. Documents might be submitted on paper or by email, and in a variety of file formats. This process is laborious, time-consuming, and highly error-prone.

OCR helps to automate this process. Instead of manually entering invoice data into an ERP, copying amounts and lines of text, or ― worse ― typing it out by hand, AP clerks can use OCR to strip the relevant data from supplier invoices, regardless of how they’re submitted. It’s easy, it’s fast, and it’s accurate.

The best OCR software with invoice processing

OCR technology is a component of the best AP automation software solutions. But OCR is just one technology of many that make up a truly end-to-end AP automation. Quadient AP employs OCR technology to automatically import invoice data from a variety of sources, capturing header data with up to 99% accuracy. We combine this technology with our GL smart coding feature, which empowers AP clerks to code invoices with just one click. Plus, we even employ machine learning to improve our invoice data capture process ― with our system improving exponentially as more invoices are processed through the software. Our new AI-powered features, including smart invoice coding and payment fraud prevention, will be released shortly.

Free Resource: How to Leverage Artificial Intelligence in Your Accounts Payable

You should consider OCR technology as an important factor when selecting an AP automation solution, but it's far from the only one. To find out more about how Quadient AP can transform your AP processes, contact us and arrange a demo today.