Data Capture for Accounts Payable - ACOM Solutions Inc.acom.com/pdf/PayStream_Data_Capture.pdf · Data Capture for Accounts Payable Putting the “See” in OCR Benefits of Automated

Featuring Insights on .. .Q3 2012

Underwritten in part by

Data Capture for Accounts PayablePutting the “See” in OCR

Benefits of Automated Data Capture

Front-End and Back-End Document Capture and Archiving

Manual versus Automated Data Capture

Different Forms of Image Recognition

Data Capture Solution Providers

© 2012 PayStream Advisors, Inc | www.paystreamadvisors.com | [email protected]

Executive Summary ......................................................................................................1

The Case For Capture ...................................................................................................2

The Data Capture Universe ........................................................................................4

The Data Capture Process ..........................................................................................6

From Back to Front ........................................................................................................7

Manual vs. Automated Capture ...............................................................................9

Front-End Automation 101 ........................................................................................11

Forms of Image Recognition .....................................................................................13

Quality Control / Validation / Reporting ...............................................................15

ReadSoft ...........................................................................................................................16

ReadSoft Case Study ....................................................................................................19

Conclusion .......................................................................................................................20

About PayStream Advisors, Inc. ...............................................................................20

Table of Contents


Executive SummaryWhen we first reported on Optical Character Recognition (OCR) and Data Capture, with our Market Discovery Report in 2008, AP departments were just beginning to realize they’d put the cart before the horse. By scanning documents at the back end they were missing the huge potential for cost savings, workflow acceleration, increased accuracy, improved compliance and reporting.

Flash forward to 2012. Automated workflow is now the state of the art. Most AP departments are able to process electronic payments. And yet, worldwide, two of every three invoices still arrive from vendors on paper.

Unwilling to wait for technology to “trickle down” to all of their vendors, many AP departments, particularly those that process high volumes of invoices, have started scanning paper invoices upon receipt to reap the benefits of electronic workflow – improved efficiency, lower costs, increased accuracy, and regulatory compliance – now.

Solution providers have seen the potential in this developing market – for OCR/Data Capture solutions, but also as a gateway for end-to-end ePayment solutions – and are pushing for perfection, each searching for the right combination of fault-tolerant algorithms that will enable companies to simply open the mail and process stacks of paper invoices straight-through, without any special document preparation or manual corrections.

This report examines current demand for OCR/Data Capture solutions and should serve as a guide for AP decision-makers considering a data capture solution. It also includes an overview of several popular OCR/Data Capture solutions, and case studies, organized for easy comparison.

For more information on this and other research reports available from PayStream Advisors, visit: www.paystreamadvisors.com


The Case For CaptureIn a 2012 survey of more than 300 AP professionals, more than half (52 percent) listed the handling of paper invoices as their number one invoice management challenge, followed closely by manual data entry and inefficient processes.

No wonder, when you consider that the same survey found that they still receive almost two thirds of their invoices (64 percent) on paper.

Almost half of the companies surveyed said they scan invoices on the front-end as soon as they are received and data shows that almost half of those still extract data from scanned invoices manually.

With the benefits of front-end data capture clearly established, progressive companies are moving to convert static paper invoices into dynamic data to increase operational efficiency, add management control and visibility into spend, and comply with Sarbanes-Oxley reporting rules.

In fact, short of increasing electronic invoicing, implementation of invoice imaging and automated workflow are the top two priorities in AP automation today. And 76 percent of practitioners say they plan to act on their top priority within the year.

Figure 1

Biggest Invoice Management Challenges 52%Majority of invoices

received in paper format

16%Decentralized invoicereceipt

14%Lost or missinginvoices

47%Manual data entry& inefficient processes

21%Lack of visibility into outstanding liabilities

23%High number of

discrepancies& exceptions

19%Inability to approve invoices in time to capture discounts

34%Manual routing ofinvoices for approval

wglick

Highlight

wglick

Highlight

wglick

Highlight


Figure 2

Top AP Automation Goal for 2012

28%Increase electronic invoicing

17%Implement invoice imaging

19%Automated approval workflow for Invoices

11%Automate payment processing

9%ERP application upgrade

2%Outsource portions of AP process

15%Other

Figure 3

Timeline for Implementation of Top AP

Automation Initiative

25%

More than 12 Months

31%

6 - 12 Months

16%

1 - 6 Months

29%

Already Started


The Data Capture UniverseIf we can land a rover on Mars, you would think that someone, by now, would have devised a foolproof way for a computer to read a stack of paper invoices and accurately convert them to electronic data.

The benefits of Automated Data Capture are clear: reduced processing costs, faster processing, fewer keying errors, better reporting, and Sarbanes-Oxley compliance. And yet, only 28 percent of companies surveyed by PayStream Advisors in 2012 currently use such technology.

That’s only a little better than half of the companies that use front-end imaging – that is, companies that already scan paper invoices and move them through their system electronically.

Challenges

What’s keeping people on the sidelines? A sampling of responses from various sources suggests there are two main reasons:

» Concern for extraction accuracy

» Lack of budget

Figure 4

Imaging Technology Use Currently Use Implementing in 6 Months

16%

49%

Front-end Imaging

19%

28%

OCR / Automated Data Capture

16%

47%

Automated Workflow

14%

70%

Electronic Payments

12%

61%

Purchasing Cards

wglick

Highlight


Turns out the fuzzy logic required to locate, interpret, and convert printed – and sometimes handwritten – characters on a page, from myriad forms, in hundreds of languages, is harder to calculate than the immutable physics of trajectory, deployment and landing.

It’s a question of consistency. It’s not unusual for a large, or even a medium-sized company to have more than 20,000 vendors spread over multiple continents. Some have more than 80,000. Larger vendors, who, themselves know how hard it can be to work with so much paper, may submit their invoices electronically, or, if on paper, at least in a scan-friendly format. Others, there’s no way of telling. Anyone who has ever tried to decipher a doctor’s prescription can understand the challenge a machine might face translating handwritten squiggles into alpha/numeric values.

Solution providers compete on whose solution can read the widest range of documents, in the widest range of languages, in the shortest time, with the least amount of document prep and manual corrections.

There is no denying that front end automation and data capture saves both time and money. The technology that solution providers utilize to go about this can vary – some solutions “learn;” some can be “taught;” and some, especially at the lower end, simply promise to do the best they can, eliminating the need for manual keying on most structured documents and leaving dicier data for human intervention. How do you know which solution is a good fit for your company? Do your homework and be sure a solution provider you choose to work with is capable of meeting the needs of your organization.


The Data Capture ProcessThis report focuses on OCR technology as it relates to accounts payable functions and improving the invoice-to-pay cycle. The graphic below illustrates the components of most OCR applications, although different vendors may place greater emphasis on one component over another.

Figure 5

Different Components of OCR Applications Data

Extraction

Reporting&

Analysis

QualityControl

Automatic/ ManualIndexing

DocumentClassi�cation

DataValidation


From Back to FrontAll scanning and OCR solutions share the goal of eliminating the manual handling of paper. Not every solution follows the same approach or provides equivalent functionality at each step of the process.

Back-end Document Capture and Archiving

The digital successor to microfilm and microfiche, documents are scanned at the end of the receipt-to-pay process and indexed for retrieval. Historically Accounts Payable departments have used scanning solutions in this manner to eliminate physical storage, facilitate document retrieval for dispute resolution, audits and supplier inquiries. This method has largely been replaced by front-end imaging with electronic routing and approval.

Figure 6

Biggest Benefits of Front-End Imaging

55%Quicker approval of invoices

35%Fewer lost invoices

50%Increased employee productivity

27%Improved visibility over liabilities

58%Lower processing costs

5%Better compliance with

regulatory requirements (SOX, FASB)

15%Other, please specify

15%Reduction in late payment penalties and interest

wglick

Highlight


Front-end Document and Data Capture

In this scenario, paper invoices are scanned – remotely or at a central processing facility – upon receipt. Information is extracted from the invoice images – either manually or through automated data capture – to facilitate internal review and approval.

Front-end data capture is a big functional improvement from back-end imaging, because it facilitates a genuine improvement in the invoice receipt-to-pay cycle. But as a mission-critical process, capacity is critical to avoid bottlenecks.


Manual vs. Automated CaptureThere are two ways to extract data from these front-end OCR scans – manual and automated. Right now, the tally is running about 60/40 in favor of automation, and that lead is expected to widen as accuracy improves.

» Manual – In a manual data capture system, AP staff key information from invoice images into forms on their computers. This method has traditionally been most effective for companies that get a lot of handwritten, or other non-standard invoices.

» Automated – With automated extraction, the computer analyzes scanned documents and extracts data according to programmed criteria. This process dramatically reduces or eliminates manual keying of data. Automated capture raises the bar for image quality, because machines are typically not as intuitive as humans when it comes to interpreting partial or garbled data.

Figure 7

Percentage of Invoices Captured with Manual

Keying

12%

51 - 75%

25%

More than 75%

10%

26 - 50%

17%

1 - 25%

37%

Zero (None)

wglick

Highlight


Figure 8

Percentage of Invoices Processed with

Automated Capture

5%

51 - 75%

10%

More than 75%

10%

26 - 50%

10%

1 - 25%

65%

Zero (None)


Front-end Automation 101Unlike a Mars mission, where you have one launch site and one target and the challenge is to manage the transit in a highly controlled environment, successful front-end data capture is all about developing a fault-tolerant system capable of accurately extracting data from a wide variety of non-standard invoices, of inconsistent print quality and page count, in random order, in multiple languages. In other words: creating order from chaos.

Today’s best practices call for front-end imaging and data capture. Paper documents are scanned at receipt, either at a central processing site or remote facility, to digitize the data they contain.

Information is then extracted using one of several types of recognition technologies:

» OCR and ICR are character-based recognition systems and are acronyms for Optical Character Recognition and Intelligent Character Recognition, respectively.

» OMR, or Optical Mark Recognition, recognized the presence of marks put in specific locations on an invoice.

» Barcode Recognition is another method of electronic data capture.

Figure 9

Front-End Processing Using Scanning and OCR

OCR and Data Capture are the central elements of modern AP automation

initiatives.

DocumentReceipt

Scanning Classification

Data CaptureIDC / OCR

Validation Image &Data Storage

Retrieve &Export

wglick

Highlight

wglick

Highlight

wglick

Highlight

wglick

Highlight


» While some solutions require a classification system to determine what needs to be forwarded to OCR, others rely on Intelligent Data Capture (IDC) which classifies by utilizing the full text content. A classification system can also utilize document attributes (such as height, width, and file size), keywords and algorithms, full text content, and image-based comparisons.

All of these technologies offer excellent accuracy, usually 80 percent or above on the first pass read rate, depending upon the quality of the original document and the hardware used. Accuracy can be increased to more than 99 percent by validating the information against back-end databases (more on that in a minute).

Today’s solutions support a wide range of brand name hardware, including network and desktop scanners. In addition to offering image and data capture, the applications provide image enhancement features such as de-skewing, de-speckling, text smoothing, edge trimming, dot/line/border, flipping, and more.

Once invoices have been scanned and enhanced to optimize recognition, some solutions use scripted rules to locate, extract, and validate the desired information, regardless of its location on the invoice. State of the art data capture uses IDC. State of the art systems can locate, extract and validate directly out of the box without the need for scripting.

wglick

Highlight


Form TypesThe “structure” of a business’s incoming documents is an important consideration in selecting a data capture solution. With some so-called “structured” documents, such as an employment application, information always appears in the same location on the page. For example, an applicant’s name may always appear in the same box in the same place on the form. With “unstructured” documents, such as a contract, the information is more freeform and can appear virtually anywhere on the page.

Invoices, which tend to vary in format from vendor to vendor, are called “semi-structured” documents and fall somewhere in between. The types of documents a company processes will have a direct bearing on the extraction solution it selects.

Document Type Structured Semi Structured UnstructuredDocument Characteristics

Familiar data appears in familiar places

Familiar data appears in both familiar and unfamiliar places

Unfamiliar data appears in unexpected places

Examples Credit card applications and medical claim forms

Invoices, payment orders

Contracts, hand written notes

Ideal Data Capture Method

Template based OCR/ICR

Intelligent Data Capture, keyword search

Pattern recognition technology based on scripted rules

Use By Accounts Payable Low volume operations for relatively few invoice formats

Invoice processing

High volume operations and many invoice formats

Image Recognition Methods

Templates

Fast and fairly accurate, template-based image recognition works like a digital cut-and-paste, with users defining fixed “capture” zones or floating zones tied to visual anchor elements to accommodate routine position shifts in documents during scanning.

The biggest advantages of template-based recognition are speed and accuracy – with first-pass accuracy approaching 100 percent after validation. Most documents processed by AP departments are not structured, however, so templates are rarely applicable.

Figure 10

Characteristics of Structured/Unstructured

Documents

wglick

Highlight

wglick

Highlight


Free-form/Intelligent Data Capture

A sophisticated solution with “fuzzy” search capabilities, Intelligent Data Capture (IDC) enables end-users to accurately extract content from documents of all types, without prior knowledge of the layout of the documents or the type of data they contain. An ideal IDC engine is able to correctly identify and sort batches of both structured and unstructured documents on the fly, locate data fields in both kinds of documents, and extract the desired content from those fields.

An IDC solution does not require time to code elaborate sets of rules or design form templates.

Fault-tolerant search capabilities improve extraction results by allowing the solution to search the complete document text for similar information rather than relying on keyword searches.


Quality Control / Validation / ReportingMost solutions provide users with the ability to capture specific fields, classify documents, view invoice information, and correct errors or low-confidence characters. Typically this is in the form of a color-coded interface for operators to validate or correct exceptions.

Invoices where the data capture accuracy falls below the pre-defined acceptable confidence levels are culled into a separate work queue, to be manually reviewed and corrected by an accounts payable operator. Many solutions display the invoice image and the data that the OCR engine has extracted side-by-side on a single screen for simple click-and-fix corrections.

Some solutions include “auto learning,” and “teaching,” capabilities, by which the system can be “trained” to more accurately read and classify specific types of data. With “smart indexing,” the capture solution can populate missing data by pulling it from vendor information already stored in the vendor database.

Although OCR applications don’t typically include their own data repositories, they do integrate with existing document management, ERP, accounting or other back-end systems for data storage and retrieval. Some solution providers offer data storage products that complement their OCR applications, typically as an add-on.

OCR solutions typically come bundled with a variety of standard reports, including batch status, operator statistics, extraction accuracy, etc. For more robust reporting, most solutions integrate with third-party reporting tools, such as Business Objects or Crystal Reports.

wglick

Highlight


ReadSoftReadSoft is a leading global provider of software solutions for Document Process Automation. ReadSoft’s software enables companies to automate document processes such as accounts payable processing, document capture, document sorting, and order to cash. Created in 1991, the company has grown to a worldwide group with operations in 16 countries on five continents and a network of local and global partners.

ReadSoft’s market strategy includes both direct and channel sales for its SAP and Oracle integrated solutions and a channel-only strategy for its capture products. The company’s objective is to provide its unique experience to the SAP and Oracle segment for companies with annual revenues in excess of $500 million, while leveraging partners to service smaller companies.

Website www.readsoft.comFounded 1991Headquarters Helsingborg, Sweden – International

New Orleans – North AmericaOther Locations Amsterdam, Bern, Copenhagen, Frankfurt, Helsingborg,

Helsinki, Kuala Lumpur, London, Madrid, Oslo, Paris, Santiago, Sao Paolo, Stockholm, Sydney, Wroclaw – International New Orleans, Chicago, Raleigh – North America

Number of Employees

542 worldwide

Number of Customers

7,700 total AP automation customers, 10,000 overall customers

Key Clients Lockheed Martin, Sony, Time Warner CablePartners / Resellers SAP, Oracle, Microsoft, Fujitsu, KnowledgeLake, Hyland

Software, Lawson, Basware, Gimmal (ERP-Link), IFS, Altec, IMB, Accenture, Deloitte, NMS Imaging, Acuite Consulting Solutions, DataBank IMX, DISC, DocuSource, Optiform

Transactions Processed Annually

2 billion invoices

Awards / Recognitions

ERP Executive’s Best of SAP SAPPHIRE® NOW award for Best Green Initiative, ECM Connection’s ACE Award Winner in compliance

Solution Name DOCUMENTS by ReadSoft, ReadSoft Online (SaaS Solution Offering)

Year Introduced DOCUMENTS by ReadSoft 2004, ReadSoft Online 2011


Differentiators

» Line-item Data Capture: The DOCUMENTS system can recognize line item data automatically even if line items differ in length or are not symmetrically spaced. Line items may also be read from any and all pages of a multi-page invoice as standard product functionality.

» First to Market: ReadSoft was the first to market a semi-structured capture product. DOCUMENTS, released in 1996 as INVOICES, launched the auto-learning technology that currently enables ReadSoft to support customers with thousands of suppliers.

» High Data Security: ReadSoft Online is built with Microsoft.NET technologies and is run on Microsoft’s cloud, Windows Azure. The underlying infrastructure and related technologies are key factors in providing a foundation for security for any cloud solution. Industry standards and best practices enable secure communication between client and server, the same type of security used for online banking transactions.

Installation

ReadSoft’s web-based solution, ReadSoft Online, can be installed in minutes. Capture-only solutions, such as DOCUMENTS by ReadSoft can be installed, on site or remote, in one or two weeks. Installation is managed by ReadSoft consultants or certified partners, following a client-specific procedure developed in a four to eight hour mapping session

Configuration

Although ReadSoft DOCUMENTS comes with a number of preset fields, they can be amended, deleted or appended, to match a client’s workflow. The software uses a proprietary auto-learning process to memorize invoice layouts, extract relevant data and associate that layout with a specific supplier. Data capture is free-form, using advanced logic and learning capabilities. There is also a “teaching” step, in which AP staff verify and tweak automated captures, to make sure that the right data is being extracted and properly identified.

Compatible with all commonly used image formats and data feeds, during configuration it is generally recommended that clients provide a representative sample of documents by layout type, with one of each type being sufficient.

Document Acquisition

Scanning is performed by departmental or production level scanners at speeds ranging from 15 to 130 pages per minute. DOCUMENTS accommodates most document separation routines, including blank sheets, barcodes, patch codes, and in some cases page logic or keywords with no manual separation prior to scanning.

wglick

Highlight


In addition to any document enhancement performed at the scanner level, DOCUMENTS allows for text-based auto rotation, character smoothing, and other imaging algorithms to ensure an optimal image.

Automatic Learning

ReadSoft DOCUMENTS has always had auto-learning capability, and it has evolved to a high level of accuracy. What little the system doesn’t pick up on its own can be easily taught through human intervention.

Validation/Correction

There is typically no need for human intervention for invoices from repeat suppliers, provided that the source documents are of reasonable quality and scanned at 300 dpi. Many organizations, for their own peace of mind, will check captured data at regular intervals, however, to verify data integrity.

Manual corrections can be performed in seconds by double-clicking the field, “rubber-banding,” or keying the correct information from the scanned image (KFI). Typically only “critical” fields – invoice number, PO number, tax, and total – are visually validated.

Business rules for validation are configurable, with status icons to flag exceptions, and email notification.

Matching / Error Detection

DOCUMENTS uses a color-coded “stoplight” interface in which items in green are given the green light and moved on to be paid without further human intervention. Yellow items may require a second look. And red items are held aside pending corrective action.

Maintainability

Once the solution has been configured, new document formats can be added easily. Auto-learning is unsupervised, with users rarely having to manually append new invoice types. As a global company, ReadSoft offers out-of-the-box functionality that includes the ability to process international invoices in 13 languages – including Chinese, Japanese, and Taiwanese.

Immediate fixes are provided for “showstopper” issues, and enhancements and “nice to haves” are typically delivered through the normal software release cycle.

Pricing

DOCUMENTS can be purchased on a perpetual or subscription (rental) basis, with fees based on transaction volume.


ReadSoft Case Study

Time Warner Cable

Challenge

At the forefront of the telecommunications industry, Time Warner Cable places cutting-edge technology at its customers’ fingertips. As the second-largest multiple service provider in the U.S., the company is in the business of connecting people through advanced cable systems.

Time Warner Cable needed to revamp its internal operations and streamline accounts payable. With accounts payable departments scattered across multiple business units, the company was strained by the constraints of a disjointed AP process and in need of a trusted and consolidated solution. Knowing the value of front-end OCR and data capture, the company went shopping for a solution provider with the best ERP partnerships and a large world presence.

Solution

After integrating its AP processing operations into a single shared services center in 2003, the company searched for a front-end data capture solution to help meet its imminent growth needs without expanding its resources to process invoices. The company implemented ReadSoft’s OCR and data capture solution for AP in 2004 and subsequently added ReadSoft’s FAX MANAGER solution and other functionalities for additional time and cost savings as success built on success.

Results

Reinvigorating its AP function with one unified and highly automated process yielded compelling results within a year, as the system processed one million invoices with 95 percent verified accuracy. The improved AP process helped TWC in its 2006 acquisition of Adelphia Communications by increasing invoice processing volume by 40 percent and significantly reducing manual labor. Automation helped facilitate other AP innovations, such as increasing the use of p-cards at former Adelphia locations.

With these initial successes under its belt, TWC began to explore possibilities for other time and paper-saving initiatives within its manual document handling. ReadSoft’s FAX MANAGER enabled high volume and discount vendors to eliminate paper by converting faxed invoices directly to digital data.

The company continues to process over one million invoices a year, and saves over 30 million keystrokes with ReadSoft’s AP automation solution.


ConclusionThe persistence of paper invoices in an increasingly electronic marketplace has progressive AP practitioners looking for proactive solutions to paper paralysis. More than half of practitioners surveyed by PayStream Advisors in the first quarter of 2012 go so far as to say it is the biggest challenge they face in invoice management, followed closely by the manual data entry and inefficient workflow paper requires.

With the benefits of front-end data capture clearly established, progressive companies are moving to convert static paper invoices into dynamic data to increase operational efficiency, add management control and visibility into spend, and comply with Sarbanes-Oxley reporting rules.

In fact, short of increasing electronic invoicing, implementation of invoice imaging and automated workflow are the top two priorities in AP automation today. And 76 percent of practitioners say they plan to act on their top priority within the year.

With even an average company getting invoices from more than 20,000 vendors in myriad formats, finding a scanning and data capture solution flexible enough to accommodate their specific vendor profile is critical.

This report, and the accompanying vendor profiles provide a good overview, for any company seriously considering an OCR/Data Capture solution.

Research MethodologyThe findings in this report are based on the results of PayStream Advisors 2012 Invoice & Workflow Automation Adoption and Electronic Invoice surveys. Participants in the surveys included more than 300 AP professionals. Based on our experience and the number of respondents, the survey has a confidence level of +/-5 percent.

About PayStream Advisors, Inc.PayStream Advisors is a technology research and consulting firm that improves the way companies plan, evaluate, and select emerging technologies to achieve their business objectives. PayStream Advisors assists clients in sorting through the growing complexities of IT applications related to business process automation with the goal of making objective, analytical, and actionable recommendations. Wherever business process automation technology is an issue, PayStream Advisors is there to help. For more information, call (704) 523-7357 or visit us on the web at www.paystreamadvisors.com.
