Invoice Digitization 101: Why and How to Automate Invoice Processing
Learn more about invoice digitization and how automating invoice processing can help your business.
August 18, 2022
Even though the first electronic invoice, the digitized version of an invoice, was sent in 1965, many businesses still send their invoices via paper or PDF. The most common reason for this is that suppliers are comfortable with the current process and they usually get paid on time. However, businesses now have to process more transactions and going through a significant amount of invoices can be expensive, time-consuming, and error-prone.
Digitizing invoices and sending e-invoice can bring significant benefits to all trade partners even though most think that changing to a new billing procedure is daunting and involves a lot of effort. In this blog post, we will be discussing what an electronic invoice is, why digitize invoices, and how to digitize invoices.
What Is an Electronic Invoice?
Although suppliers nowadays might send their invoices via PDF, that is not considered an electronic invoice.
By definition, electronic invoicing, or e-invoicing, is a form of electronic billing that allows trade partners to electronically and automatically process invoices. The information stored in PDF files is not structured and therefore cannot be imported into any ERP or accounting software. In other words, for an invoice to be truly electronic, it must be able to enter, or be integrated, into a trade partner’s Accounts Payable (AP) system without any manual data input. Thus, an e-invoice is usually issued in Electronic Data Interchange (EDI), XML formats or any other common types of structured data.
The Benefits of Digitizing Invoices
Digitizing invoices does more than just allowing businesses to go paperless and save some office space. Digitization of invoices that is well planned and executed can help businesses in a variety of ways.
Reduce Costs Associated with Physical Invoices & Manual Processing
Organizations can enjoy substantial savings from digitizing invoices, whether it’s incoming or outgoing invoices. For outgoing invoices, you will no longer need to print out invoices, requiring ink and paper, and send them out in envelopes. For incoming invoices, costs related to manual processing invoices can be quite high once you have to deal with a lot of invoices. Digitizing invoices can then reduce or even eliminate these costs.
Increase Efficiency of Invoice Processing & Save Time
Whether you are handling outgoing or incoming invoices, digitizing invoices can significantly help your organization improve the processing efficiency. The typical procedure of handling incoming invoices may include receiving the invoices, scanning them or entering the data into your systems manually, approving or rejecting invoices, submitting invoices for payments, and then archiving invoices and payment information.
However, if your invoices are digitized, you will no longer have to manually input the information and since the data is structured, invoices can even be processed and approved automatically by AP software.
Reduce Human Errors and Avoid Payment Delays
Employees can suffer from stress and fatigue, resulting in human errors. In addition, invoices might sometimes get omitted or processed late, which could lead to payment delays. Going digital can then speed up and automate the process to reduce human errors and avoid payment delays.
There are some other advantages of digitizing invoices such as ease of searching for information, increased durability, ability for business intelligence, etc. Although many might not see how digitizing invoices, or e-invoicing, can create values for their organizations at first sight, many businesses have certainly adopted it and greatly benefited from it.
Automate Invoice Digitization with FormX
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Manual data entry was the main means of invoice digitization. Staff from the AP department receive invoices and enter the information into the AP software. In order to replace manual data entry, some may use optical character recognition (OCR) to extract data from invoices. However, using OCR itself is not enough since the results are simply unorganized texts that cannot be directly imported into other software.
Let’s try it with a real example. Below is a scanned image of an invoice.
If we extract the texts using an online OCR tool, the result will look like this:
Stevugo Asia Ltd.
To: Acme Hong Kong Limited Invoice No: INV-4845-16 12/F, Life Tower. PO No:
PO9213145 9000 Nathan Road, Victoria City, Hong Kong Invoice Date:
Due Date: 23 Feb 2022 22 Mar 2022 Attn: John Chan Tel: 2345 7890 Fax: 2345 7899 VAT
No: 113506 WE RESERVE THE RIGHT TO CHARGE 2% PER MONTH OR PART THEREOF AS PENALTY FOR ANY LATE PAYMENT.
# Description Qty Unit Price Unit Amount 1 Sunday Bag 110 8.15 USD 110 896.50 USD Sales Brenda Lee Remarks INV-4845-16
Total Amount 896.50 USD
Discount Less Down Payment
Total Amount Due 896.50 USD Please pay to our bank account in Hong Kong
Bank Name HSBC SWIFT Code HSBCHKHHHKH Address 500 Queen’s Road, Central, HK A/C Name Stevugo Asia Ltd. A/C # 424-424242-424 101/F, Central Tower, 500 Queen’s Road, Central, HK Tel: (852) 2992-1234 Fax: (852) 2992-1235
The extracted information is not paired or structured in any way. The computer will not know that the total amount due is 896.50 USD or the bank name is actually HSBC as they are not extracted as key-value pairs. To overcome this, another solution called intelligent document processing was introduced.
Intelligent document processing solutions like FormX integrate OCR with other AI technologies to automatically extract data from images or PDFs and generate structured data in JSON or CSV formats that can be directly imported into other software.
How to Digitize Invoices and Automate Invoice Processing?
FormX comes with a set of pre-configured extraction models, including receipts, ID documents, business certificates, invoices, and more. Custom models with high accuracy can also be developed upon requests.
It’s quite simple. If you are extracting data using one of our pre-configured extraction models, all you have to do is sign up for a free trial, choose your templates, upload a sample for testing, and then integrate FormX with your accounting system through RESTful API.
The image below shows the JSON result of the Stevugo Asia Ltd invoice sample.
The essential information, such as invoice date, total amount, invoice number, due date, and PO number, has been extracted and organized for further processing.
After the integration, you can easily process piles of invoices within minutes or even seconds and automatically send the result to your accounting software or generate csv files and import them into other systems.
Sign up or contact us to see how FormX can help you digitize your invoices and automate invoice processing to help you gain a competitive advantage.