Docsumo Invoice Automation Guide

1. Invoice Processing Automation [COMPLETE GUIDE]

2. TABLE OF CONTENTS 2 WHAT IS INVOICE PROCESSING? What are Invoices? How invoicing processing works - Their role in business? 2 way / 3 way matching invoices Fields in an invoice Manual vs automated invoice processing. 6 HOW TO AUTOMATE INVOICE PROCESSING Automated invoice processing workflow. Data extraction methods from invoice - OCR vs AI vs Deep Learning. 12 COST OF INVOICE PROCESS AUTOMATION Invoice automation benefits 15 HOW TO SELECT AN INVOICE PROCESSING SOFTWARE Comparison amongst invoice processing automation software [Kofax, Nanonets, Rossum, Abbyy, Docparser, Hyperscience, Hypatos, Taiger]

3. 02 Chapter 1 - What is invoice processing? What are Invoices? the list of products and their prices at which the buyer agreed to pay the seller. 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 general, there are two types of invoices based on the purchase order. 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. 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. 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. Invoicing Processing 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. 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. What is Purchase Order(PO)? A purchase order (PO) is issued by the buyer to the seller. It contains

4. 03 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. Step 1: Receive Invoice Step 3: Data Entry 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. 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. Step 2: Verifying the Information 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. Step 4: Approval and Payment 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. 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

5. 04 2-way / 3-way Matching Invoice Processing Methods 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. Fields in an Invoice A typical invoice states the below details: NAME: JANE M. DOE DATE: 30/08/2020 INVOICE: 2NIF123456789 TOTAL: $4177.00 Invoice Owner Contact Name Subject - This indeed tells that the Status particular document is an invoice Created By Sales Order Modified By PO (Purchase-Order) Billing address/Shipping address Taxes (GST, VAT, Excise duty, etc.) Quantity/Price/Product name Date of the Invoice Total Sales Commission Terms & Conditions Account Name Description

6. 05 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:- Manual vs. Automated Invoice Processing Automating invoice processing has numerous benefits over processing it manually. Let’s see how they’re different:- AUTOMATED INVOICE PROCESSING MANUAL INVOICE PROCESSING The whole processing is done manually by a group of people. Invoice process is done by intelligent OCR solutions. Manual Process is slow. Automated Invoice Processing is 10 times faster than manual processing. It is prone to human errors. Accuracy over 98% . A lot of time and money is invested. Saves time and labor costs. There is a chance of fraud. Data validation and verification rules reduce the chances of any fraud. Because of the slow processing, payments can be delayed. Payments are scheduled on time. The 3-way matching process is hard to do. The 3-way matching process is made easy.

7. 06 Chapter 2- How to automate invoice processing 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.

8. 07 Automated invoice processing workflow 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 Phase - 1: Capturing Invoice Phase - 3: Validation 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. 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. Phase - 4: Approval Routing Phase - 2: 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.

9. 08 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. Data extraction methods from invoice 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.

10. 09 ii) AI-Based or Cognitive Extraction 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. iii) Combining Machine Learning & Template-based approach 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. 1 0 COGNITIVE DATA CAPTURE OCR BASED EXTRACTION Less human intervention is required. But cannot be automated completely. Least or no human interference is required.It can be automated completely. Best for the companies where the invoice format does not change frequently or no new invoice formats are received. Best for the big companies which have many vendors and invoice format changes frequently. High accuracy for regular invoices. But fails when a new format invoice is introduced Neural networks learn and get adapted to different invoices. Accuracy improves in a short period. 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. Ideal for repetitive similar format invoices from less number of vendors. Ideal for processing invoices where templates change frequently from one invoice to another. Creation of one template may take 10 mins up to 1 hour No need for template creation.

12. 1 1 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). OR Cognitive Data Capture

13. 1 2 Chapter 3 - Cost of invoice process automation processing 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. Factors driving higher costs 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.

14. 1 3 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. Invoice automation benefits/Ways to cut invoice processing costs 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.

15. 1 4 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.

16. 1 5 Chapter 4 - How to Select an Invoice Processing Software? 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:- 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. 1 6 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.

18. 1 7 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. Comparison of invoice processing automation software Docsumo 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%

19. 1 8 Kofax 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. Nanonets 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. Rossum 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 Abby Flexi capture 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.

20. 1 9 Docparser 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. Hyperscience 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. Hypatos 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. Where does Docsumo stand in this picture? 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!

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