Invoices have been in use for thousands of years, with the first paper-based invoice recorded in 1504 AD. Hieronymus Bosch submitted this invoice to King Phlip the Handsome. It’s unclear what goods or services the king was invoiced for, but one thing is certain: the invoicing process has remained relatively unchanged right through to modern times.
Today, invoices are a central part of the accounting process. Invoices are submitted to a company’s accounting division either digitally or on paper. They are formally received and the bookkeeper records the invoice in an accounts payable ledger. Then finally, the invoice is paid. Seems simple and straightforward, right? While this process may work well for a small mom and pop operation, larger companies require more comprehensive invoice processing.
Old School Invoicing: Paper Invoices, Ledger Books and Beyond
Up until relatively recently, paper-based invoices were the norm. An invoice would be typed up, printed and mailed. Some were even handwritten and hand delivered at the time services were rendered. The invoice itself was composed of line items with a description of the goods sold or services rendered and accompanying price. The bottom of the invoice would specify the total amount due and payment due date.
The invoice would be submitted to the accounting department where a bookkeeper would formally receive the payment request. The payment request would then be entered into an accounts payable subledger.
Similar in function to a checkbook, a general ledger comes in the form of a journal or notebook, with debits and credits recorded on separate lines. The ledger is used to prepare financial statements and it includes an overview of active accounts. More specific data — including accounts payable data from invoices — is documented in subledgers. This information is then aggregated into the general ledger to offer a bird’s eye view of the company’s accounting data.
Once the invoice is recorded in the company’s ledger, a payment is issued and the invoice is marked as paid. The paper invoice document is usually filed away for posterity. That’s the end of the traditional invoice processing story. While not super efficient, these steps work for companies with a low volume of incoming invoices. Larger businesses require technology to streamline their accounting processes. This includes the handling of accounts payable transactions such as invoice processing.
Data Capture for Invoice Processing
Invoice data capture is an important part of modern invoice processing. Today’s accountants generally favor digital documents. They actively strive to minimize the use of paper documents for a few different reasons.
- Paper documents pose a security risk and there is the added cost of storage and shredding. Digital documents can easily be encrypted and, if necessary, securely deleted.
- Paper documents are vulnerable to damage, making long term document storage difficult. Digital documents can be stored in the cloud where they are impervious to damage or corruption.
- A large volume of paper documents can rapidly become unwieldy, taking up valuable office space. Digital documents can be stowed in the cloud, where there is unlimited data storage space.
- It’s impossible to query paper documents as you can query digital documents. This means that paper documents are of limited use for scenarios where you are searching for a specific piece of information.
Most of today’s modern accountants view document digitization as an essential step for processing paper invoices. A typical invoice will contain a variety of data points, including:
- Vendor name;
- Vendor contact information;
- Description of product or service;
- Line item prices;
- Total amount due; and
- Payment due date.
The accountant also needs to record the method of payment and the date that a payment is issued.
Once captured in a digital format, this data can be entered into a ledger, queried or used in various accounting reports and documentation. Blockchain technology is especially well-suited to accounting applications, as it entails the use of a highly-secure virtual ledger.
Choosing From Three Invoice Data Capture Methods
There are three basic invoice data capture methods to consider: manual data entry, template-based OCR and smart artificial intelligence (AI)-powered OCR.
- Manual data capture involves a human who manually reads data from the invoice and then types it into a database. This process is inefficient, time-consuming and there is significant potential for human error.
- Optical character recognition (OCR) technology “reads” and extracts data from the financial documents. Template-based OCR uses predefined rules that align with the format of the invoice that’s being processed. This method of invoice data capture can be fairly accurate and somewhat efficient. But the drawback to this method is that you must create a template and rule set for each and every invoice format.
- Smart OCR invoice data capture is the most efficient option. Artificial intelligence technology facilitates a highly-automated document scanning process. Machine learning technology makes this OCR scanning technology “smart,” because it is capable of updating its algorithm and essentially “learning” from its mistakes.
Invoice data capture technology goes a long way toward streamlining modern accounting processes. But this software can be expensive. This has prompted many companies to consider outsourcing their invoice data capture processes.
Outsourcing your invoice data entry is ideal because you will enjoy all the benefits of data capture software without the downsides such as employee training costs or software licensing expenses.
What’s more, machine learning technology allows our data capture software to adapt to your needs. This translates into improved accuracy and efficiency over time.
At iTech, machine learning-powered data capture technology is amongst our specialties. We understand the challenges that modern companies face when confronting the issue of secure and efficient data entry. We also understand that some organizations may hesitate to outsource a process that involves financial documents.
At iTech, we acknowledge these issues and we invite you to reach out to discuss your concerns. We’re confident our invoice processing and data capture solutions will bring a robust ROI with full peace of mind that your data is safe and secure every step of the way.