What is Invoice Scanning? How it Works, Benefits, Applications

Invoice scanning is a crucial step in managing the accounts payable (AP) process for any business. You may think that invoice scanning is no longer required if invoices are received electronically.

However, according to Bottomline’s The State of ePayables report, more than a staggering 48% of invoices are received in paper format. In other words, paper invoices are still very much a part of modern accounts payable, and so is invoice scanning.

In this blog, we’ll look at what invoice scanning is, how it works, its benefits, and potential use cases.

What is Invoice Scanning?

Invoice scanning, as the name suggests, refers to the process of digitizing paper invoices. This can be done by scanning the invoice or by taking a picture of the invoice.

While invoice scanning and invoice data extraction are often used interchangeably, they are two different steps in the overall invoice processing workflow. Simply put, invoice scanning is about converting invoices from paper to digital format, whereas invoice capture is about extracting information from the invoice.

Nevertheless, efficient invoice management cannot be achieved without digitization, especially invoice scanning. Before this technology, accounts payable teams had to manually enter data, which consumed valuable time and resources. Invoice scanning has changed that, automating much of the work and making the entire process more streamlined and efficient..

In short, invoice scanning represents the transition from paper-based invoicing to digital systems, which offer significant benefits (more on that later).

How Invoice Scanning Works

Invoice scanning is typically carried out using OCR technology. OCR, short for optical character recognition, is a widely used technology that can convert printed or pictured text into digital data. It recognizes characters in scanned documents or images and converts them into editable and searchable text. While OCR has been around for a while now, recent leaps in AI technologies are also transforming how OCR works.

That said, here’s what invoice scanning using OCR typically looks like:

1.   Invoice Capture

AP teams receive invoices through various data sources. For instance, some vendors send them via email, while others send paper invoices, which an employee then scans and uploads online. This first step involves seamlessly connecting all the data sources to the invoice scanning software.

2.   Data Extraction

Just as the source varies, the structure, layout, and data fields on an invoice can also vary significantly between different contractors and vendors. The data extraction step involves identifying and extracting relevant fields for processing, either through OCR or IDP (intelligent document processing).

3.   Data Processing

Once the relevant fields have been extracted from all invoices, the data undergoes processing. Processing can vary from solution to solution, but it typically involves aligning the data fields with any predefined templates.

AI-powered invoice scanning uses algorithms to process data based on previously processed invoices to ensure all the relevant data fields have been accurately extracted.

4.   Data Validation

After the invoice data has been processed, it is validated based on pre-defined validation rules. For instance, this could include verifying that the invoice data is within an acceptable range, for example, not older than 90 days, to confirm that it is indeed accurate. Data validation also ensures that any data that doesn’t meet the set standards is routed for manual verification.

5.   Invoice Approval

As soon as the validation is complete, the invoice is routed to the relevant person(s) for approval. This routing is based on pre-defined approval workflows that can be set up as part of overall invoice processing.

6.   Payment

After the invoice goes through the approval workflow, the accounts payable team processes the payment. Payments can also be automated for recurring invoices with integrated payment functionality.

While these steps can vary depending on a number of factors, modern invoice scanning ensures that most of them are automated through AI and machine learning technologies and require minimal human intervention.

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8 Benefits of Invoice Scanning for AP Teams

So far, we’ve talked about what invoice scanning is and how it works. Now, let’s look at how invoice scanning benefits AP teams:

1.   Resource Optimization & Efficiency

Invoice scanning automation allows AP teams to reduce manual data entry tasks by more than 80%. More than 50% of AP professionals consider manual data entry to be their biggest challenge, and 71% want to automate their invoice scanning to speed up their AP operations.

2.   Cost Savings

Invoice scanning can also result in significant cost savings for AP teams as it reduces and even completely eliminates the need for manual data entry.

According to estimates, 80% of businesses are expecting growth in the volume of invoices their AP teams will process in the coming years. Considering this increase in volume, automated invoice scanning can help companies save on manual data entry and avoid late payment penalties.

3.   Increased Accuracy

According to PYMNTS, 85% of finance leaders think invoice scanning automation leads to more accurate processes. Plus, 47.1% of AP professionals believe one of the biggest invoice-related challenges is data errors and discrepancies, causing process delays for approvers and stakeholders.

With AI-powered OCR finding increased use, the higher accuracy makes it a worthwhile investment for AP teams of all sizes.

4.   Faster Payment Cycles

By automating invoice scanning, AP teams can not only streamline invoice processing but also speed up the payment cycle by up to 50%. The overall upside is that companies can improve their cash flow management significantly.

5.   Greater Scalability

Lack of scalability with manual invoice scanning is a big hurdle for companies looking to grow. Invoice scanning can help businesses scale without having to hire additional resources for data entry.

6.   Improved Data Management

Modern invoice scanning solutions also improve the overall data management for companies in more ways than one. For instance, since all the invoices are stored and processed digitally, stored data is easy to organize, search, and retrieve when needed.

7.   Ease in Compliance

AP teams also have compliance and audit-related responsibilities to fulfill. With manually processed invoices, preparing reports for auditing can take up a lot of time. However, automation in invoice processing can help AP teams access recorded invoices instantly and generate reports in no time.

8.   Better Vendor Relationships

With faster payment cycles, invoice scanning also has a positive impact on vendor relationships. Companies that process payments on time are able to build long-term and favorable partnerships with vendors, which in turn leads to business benefits in the long run.

Invoice Scanning: Top 10 Sectors That Benefit The Most

While we’ve discussed how investing in modern invoice scanning offers a host of benefits which sectors stand to gain the most? Certain sectors, like financial services, healthcare, technology, and logistics, have unique AP challenges that invoice scanning can solve.

1.   Retail and E-Commerce

Retail and e-commerce sectors have high transaction volumes, multiple suppliers, and the need for fast inventory turnover.  Modern invoice scanning tools can enable companies in the sector to streamline their accounts payable, improve supplier relationships, and get real-time visibility into their cash flow to effectively manage fluctuating demand.

2.   Manufacturing

The manufacturing sector deals with complex supply chains and frequent purchase orders, which require precise invoice matching and timely payments to avoid production delays. By streamlining invoice scanning, companies can implement automated matching of invoices, purchase orders, and receipts, better cost control, and reduced risk of supply chain disruptions.

3.   Healthcare

The healthcare sector is known for its high compliance requirements, a wide variety of vendors, and strict deadlines for payments. By automating invoice scanning, companies can ensure regulatory compliance, accurate record-keeping, and seamless integration with procurement systems.

4.   Construction & Real Estate

In the real estate and construction sector, numerous vendors, subcontractors, and project-based payments can make manual invoice scanning challenging. However, with the right solution, companies can get benefits such as centralized invoice tracking, faster approval workflows, and the ability to manage payments tied to project milestones.

5.   Financial Services

The financial services sector also deals with large transaction volumes and the need for strict security and fraud prevention measures. Streamlined invoice scanning can enhance fraud detection, fast-track payment approvals, and improve regulatory compliance.

6.   Technology

Many companies in the tech sector are contending with fast-paced growth, international vendor relationships, and subscription-based expense models. With automated invoice scanning, tech companies can enjoy scalable processes, seamless integration with ERP and CRM systems, and real-time reporting for better decision-making.

7.   Hospitality

Multiple locations, high vendor diversity, and seasonal spending patterns are part and parcel of the hospitality sector. However, automated invoice scanning ensures centralized management of vendor payments, early payment discounts, and better cash flow management.

8.   Education & Nonprofits

Organizations in the education and nonprofit sectors are bound by limited budgets and strict accountability for donor or grant funds. By automating their invoice processing, they can get transparent reporting, cost savings, and more efficient use of limited resources.

9.   Logistics & Transportation

Logistics and transportation companies deal with frequent invoicing and payments for fuel, maintenance, and third-party services. With streamlined invoice scanning and payments, they can benefit from automated invoice matching, faster approvals, and real-time tracking of expenses for better budget control.

10.        Energy & Utilities

Companies in the energy and utilities sector face high regulatory oversight and deal with numerous vendors for equipment, supplies, and services. Automated accounts payable helps them improve compliance, enable faster invoice processing, and enhance fraud prevention.

Streamline Your Invoice Scanning with Astera

Invoice scanning is crucial for smooth accounts payable operations for every organization, regardless of their size or the sector they’re in.

If you’re looking for a reliable partner, Astera can automate your accounts payable workflow for faster, more accurate invoice processing. With Astera’s AI-powered invoice processing solution, your AP team can achieve:

• Up to 97% error reduction in invoice scanning,
• Up to 8 times faster invoice processing,
• And up to 90% faster data extraction.

Schedule a demo with our team to see how Astera can streamline your invoice scanning.