Data Capture for Accounts Payable

Transcription

1 Data Capture for Accounts Payable Putting the See in OCR Q Featuring Insights on... Benefits of Automated Data Capture Underwritten in part by Front-End and Back-End Document Capture and Archiving Manual versus Automated Data Capture Different Forms of Image Recognition Data Capture Solution Providers

2 Table of Contents 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 Forms of Image Recognition...13 Quality Control / Validation / Reporting...15 Perceptive Software (Brainware)...16 Perceptive Software (Brainware) Case Study...20 Conclusion...22 About PayStream Advisors, Inc...22

3 Executive Summary When 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 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:

4 The Case For Capture In 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. Figure 1 Biggest Invoice Management Challenges Majority of invoices received in paper format 52% Decentralized invoice receipt 16% Lost or missing invoices 14% Manual data entry & inefficient processes 47% Lack of visibility into outstanding liabilities High number of discrepancies & exceptions Inability to approve invoices in time to capture discounts 21% 19% 23% Manual routing of invoices for approval 34% 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.

5 Increase electronic invoicing 28% Figure 2 Top AP Automation Goal for 2012 Implement invoice imaging Automated approval workflow for Invoices 17% 19% Automate payment processing 11% ERP application upgrade 9% Outsource portions of AP process 2% Other 15% Figure 3 Timeline for Implementation of Top AP Automation Initiative 29% 31% 25% 16% Already Started 1-6 Months 6-12 Months More than 12 Months

6 The Data Capture Universe If 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. Figure 4 Imaging Technology Use Currently Use Implementing in 6 Months 70% 61% 49% 47% 28% 16% 19% 16% 14% 12% Front-end Imaging OCR / Automated Data Capture Automated Workflow Electronic Payments Purchasing Cards 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

7 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.

8 The Data Capture Process This 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 Data Validation Quality Control Document Classification Automatic / Manual Indexing

9 From Back to Front All 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 Quicker approval of invoices 55% Fewer lost invoices 35% Increased employee productivity 50% Improved visibility over liabilities 27% Lower processing costs 58% Reduction in late payment penalties and interest 15% Better compliance with regulatory requirements (SOX, FASB) 5% Other, please specify 15%

10 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.

11 Manual vs. Automated Capture There 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 37% 25% 17% 10% 12% Zero (None) 1-25% 26-50% 51-75% More than 75%

12 65% Figure 8 Percentage of Invoices Processed with Automated Capture 10% 10% 10% 5% Zero (None) 1-25% 26-50% 51-75% More than 75%

13 Front-end Automation 101 Unlike 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 Document Receipt Scanning Classification OCR and Data Capture are the central elements of modern AP automation initiatives. Data Capture IDC / OCR Validation Image & Data Storage Retrieve & Export

14 »» 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.

15 Form Types The 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 semistructured documents and fall somewhere in between. The types of documents a company processes will have a direct bearing on the extraction solution it selects. Figure 10 Characteristics of Structured/Unstructured Documents Document Type Structured Semi Structured Document Characteristics Examples Ideal Data Capture Method Use By Accounts Payable Familiar data appears in familiar places Credit card applications and medical claim forms Template based OCR/ICR Low volume operations for relatively few invoice formats Familiar data appears in both familiar and unfamiliar places Invoices, payment orders Intelligent Data Capture, keyword search Invoice processing Unstructured Unfamiliar data appears in unexpected places Contracts, hand written notes Pattern recognition technology based on scripted rules High volume operations and many invoice formats Image Recognition Methods Templates Fast and fairly accurate, template-based image recognition works like a digital cut-andpaste, 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.

16 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.

17 Quality Control / Validation / Reporting Most 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 backend 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.

18 Perceptive Software (Brainware) Perceptive Software, a Lexmark company (NYSE: LXK), is a leading creator of enterprise content management (ECM) and business process management (BPM) software products and solutions committed to superior engineering and unmatched customer focus. Following Lexmark s acquisition of Brainware in 2012, the Brainware Distiller platform for intelligent data capture has been rebranded as Perceptive Intelligent Capture, powered by Brainware (referred to as simply Brainware in the following text), and can be implemented as a standalone intelligent capture platform, or as an embedded technology in other solution providers offerings. Brainware was built from the ground up to process unstructured documents without templates, keywords, exact definitions, taxonomies or indexing. Brainware automatically classifies documents based on their content, extracts fieldlevel and line-item data from documents, verifies the accuracy of the extracted data, identifies discrepancies, and then exports the data into any number of enterprise systems such as enterprise resource planning (ERP), enterprise content management (ECM), and many others. The typical results are that 90% or more of data entry keystrokes are eliminated thereby improving productivity by 3 to 5 times or more. Errors are reduced or even eliminated, and input cycle times are improved measurably, enabling early payment discounts and better working capital visibility. This allows AP departments to redeploy data entry personnel to other, more value-added activities within the organization, such as developing continuous improvement strategies. Website Founded 2006 (acquired by Lexmark International in 2012) Headquarters Perceptive Software based in Shawnee, KS, with Brainware executive offices in Ashburn, VA Other Locations Maidenhead, UK; Nottingham, UK; Neuchatel, CH; Freiburg, DE; Miami, FL Number of More than 1200 within the Perceptive Software Division Employees Number of Customers Key Clients Partners / Resellers Transactions Processed Annually There are more than 350 implementations of Brainware technologies worldwide Mayo Clinic, Sun Chemical, Philip Morris International In March 2012, Brainware was acquired by Lexmark International and became a unit within Lexmark s Perceptive Software division. Other valued partners and resellers include Microsoft, Dolphin, CSC, Oracle, and Concur Brainware customers are licensed to process billions of pages of documents per annum

19 Awards / Recognitions Solution Name The Walt Disney Company and Mayo Clinic recently received awards largely due to the results they have been able to achieve through Brainware s technology Perceptive Intelligent Capture, powered by Brainware (previously Brainware Distiller ) Year Introduced V5.4 introduced in May 2012 Differentiators»» Exceptional accuracy»» No-touch extraction»» Patented, proprietary technology»» Unabashedly high-end solution Installation For on-premises AP deployments, Brainware s software can be easily installed, operational and ready for User Acceptance Testing within a few weeks. Brainware uses a foundation configuration based upon best practices, validations and integration points accumulated from hundreds of deployments. This baseline requires neither templates nor vendor-specific rules, can recognize foreign languages (including Chinese, Japanese, Korean, and Thai), distinguish a large number of foreign currencies and taxes, and perform vendor matching and PO line pairing right out of the box. Actual implementation time depends on the level of customization and complexity. Brainware is also available as Software-as-a-Service (SaaS), hosted on Microsoft Azure. Configuration Brainware uses proprietary neural network-based classification technologies, combined with template-free data extraction, that enable processing of any document type through a single platform. As a result, Brainware provides materially higher extraction rates and scalability, while also being significantly less expensive to implement and maintain. Brainware will automatically classify incoming paper or electronic documents based on content, extract any needed data from them based on context (without the use of templates, zonal maps, and/or keywords and anchors), validate the data against external databases or reference sources, and pass the document image and the validated data on for further processing or archiving all with little or no manual keying or document separation. Different document types can be automatically classified after scanning in order to reduce manual sorting. Furthermore, documents can be input from virtually any source including scan,

20 , fax, file system, and database, and in any format including TIF, PDF, DOC, XLS, and many more. Document Acquisition Little or no sorting is required for incoming documents. Scanned documents are OCR d as soon as they enter Brainware so that the system can then read and classify them based on their content. Batch size is configurable and batches can include myriad document types within each one. As part of data extraction in Brainware, the system validates nearly every field being processed. Some fields are validated mathematically (e.g. subtotal + freight + tax = total), or logically (invoice date is not greater than today s date), while others are validated against external data sources (e.g. vendor is matched to valid vendor master file, or PO lines are paired with invoice lines). As a result, Brainware has one of the highest levels of straight-through-processing (i.e., touchless) in the industry. Automatic Learning The standard accounts payable implementation is based upon an initial learn set of 31 samples. For other document types, Brainware requires 2-5 sample documents to learn to process them. Brainware s supervised learning adapts to changes suggested by the business users of the system via a verification interface. An administrative layer is included in order to ensure that such requests are reviewed for acceptability before being deployed globally. Validation/Correction Brainware routinely achieves average field-level extraction rates of 90% or more out of the box. In the event that data is not extracted properly within preestablished accuracy thresholds (e.g., the sum of line items does not match the extracted subtotal) or a business rule creates an exception, Brainware sends an image of the document at issue to a verifier for error correction and/or business rule processing, prompting the verifier for a suggested correction (typically completed with a few keystrokes). Matching/Error Detection During export processing, information on line items extracted from invoices are compared to PO data in the customer s financial system. When a match is found, the PO number and the line number associated with the invoice line item is added to the export data to further automate reconciliation in the financial system. Fault tolerant search capabilities prevent false exceptions, reducing the number of verifications required while maximizing straight-through-processing.

21 Maintainability Brainware processes documents the same way a human would by examining content and locating information that needs to be extracted. With Brainware, there is no IT cost or time required to develop new templates when new vendors are on-boarded or existing vendors change invoice formats. Brainware can process any document type in over 200 languages and in any currency. Pricing Brainware solutions are licensed on either a per-click or perpetual basis. Per-click pricing charges monthly based on the number of document pages processed, subject to monthly minimums. Software license fee and maintenance are included. Upfront costs include implementation and licensing. A perpetual license includes an upfront fee based on anticipated volume. This model tends to offer a lower overall cost of ownership, because annual fees include only maintenance. Support staff is available Monday through Friday from 8 a.m. to 8 p.m., as a standard service. Plans are currently underway to establish a 24/7 customer support system. Brainware s customers can communicate with support staff via phone, and FTP, as well as remote access programs such as GoToMeeting and WebEx. Brainware works with each customer to determine the manner in which they would prefer to be supported. Analytics Brainware Visibility provides business intelligence through a dashboard, reporting, and analytics module that is included with the Brainware intelligent data capture platform. The system provides real-time insight into document status, accounts payable staff productivity; spend data, and many other key AP performance metrics and trends, through a configurable, browser-based user interface.

22 Perceptive Software (Brainware) Case Study Royal Dutch Shell Challenge Royal Dutch Shell is a global group of energy and petrochemical companies with 90,000 employees in more than 80 countries and territories. Providing transport fuel to about 10 million customers each day through its 44,000 service stations worldwide, Shell produces the equivalent of 3.2 million barrels of oil and natural gas per day, saw 2011 revenues of $470 billion and is headquartered in The Hague, Netherlands. The company is currently ranked #1 on Fortune s Global 500 list. Shell needed a scalable platform for header-level data extraction that would enable internal controls and accelerate the processing of new vendor invoices. The company was looking to centralize accounts payable for all of its global operations and needed to establish standard global AP invoice processing protocols. Solution Shell first implemented Brainware Distiller in 2003, having selected the technology as a scalable platform for header-level data extraction, enabling internal controls and processing new vendor invoices swiftly. In 2009, Distiller played a key role in centralizing accounts payable operations to Shell s shared services center in Manila, as well as establishing a standardized global protocol for processing invoices into SAP. Result We ve counted on Brainware as a cornerstone of our global SAP rollout since 2003, relying on Distiller s capabilities for handling multiple languages, countless document formats and a complex array of regional compliance needs with a single platform, which supports the efficiency goals of our captive financial shared services operation, the world s largest, said Steven Breaden, Senior Manager of Expenditure Technical Strategy at Shell. Furthermore, automated capture has given us greater control throughout the accounts payable process, and has allowed us to implement a standardized process for payables in our global Downstream business. Now able to process and reconcile line-item data against an internal purchase order database, the company was achieving significant levels of straight-through (touchless) processing on PO-based invoices, and the

23 technology s language-agnostic capabilities supported the processing of documents from diverse regions using a single data capture platform. From the outset, the company was surpassing 90% field extraction. Breaden also noted Distiller s ability to provide an end-to-end solution capable of handling both high-volume suppliers and the long tail of invoices that typically require manual keying to process.

24 Conclusion The 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 Methodology The 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) or visit us on the web at com.

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