Why invoice scanning and OCR is no more than an interim solution

The following article first appeared in Peter Whent’s blog “Small Business Syndrome”. Peter Whent is Chief Executive of EGS Group Limited. You can follow his blog here: http://small-business-syndrome.blogspot.com/

Invoice scanning together with Optical Character Recognition (OCR) – digitising paper documents to you and me - is presented by many as the answer to everyone’s electronic invoicing prayers. In fact one company which I won’t name, which claims to be a leader in e-invoicing, is actively promoting it as their strategy. There are several reasons why invoice scanning is not the answer and represents only an interim solution.

The holy grail in the world of e-invoicing is that an invoice should go from creation, to delivery, to approval, to payment without a piece of paper being created. In other words machine to machine with software doing the work along the way. Not a pipe dream at all. Today we deliver hundreds of thousands of true electronic invoices a year that follow exactly this path. And with some ground-breaking new interfaces and tools currently in testing, we expect that number to increase sharply in the months ahead.

Invoice scanning and OCR (in the context of invoice processing) became popular because companies couldn’t persuade enough of their suppliers to adopt a truly electronic method of submitting invoices. This meant they found themselves in no man’s land – paying for an e-invoice solution but still having to retain a small army of employees to handle paper invoices. Scanning and OCR takes the paper, scans it and uses OCR technology to lift the data off the page so that it is useful and uses it to create an electronic invoice. But here is why it is no more than an interim solution:

1. It is at best an inaccurate process. OCR software vendors will tell you they can read characters from paper with 99% accuracy. That may be so with a simple text document in a medium sized typeface. But when it comes to small print on invoices, the reality is that it is a lot less accurate. It only needs to read one character incorrectly in the wrong place for the invoice to fail in an electronic approval process. Someone has to manage these failures and exceptions. People involved in the process? Not what was promised from “electronic invoicing”.
   
   
2. OCR on its own is not enough. The next thing a well run AP department will want to do is validate an invoice before it goes into an approval process so that it doesn’t get lost within the approval process. Validation, which is an automated process, includes all those pre-flight checks before starting an electronic approval process – is there a Purchasde Order (PO) number? Does it relate to an existing PO? Is there a supplier reference? Is there a VAT number? Does the invoice add up correctly? And so on. Even the most sophisticated solutions with people checking every invoice struggle with this. Suddenly the failure rate has risen. More inaccuracies and exceptions to manage. More people involved.
   

Of course the net result of this is that you or your outsourced provider has to incur some real costs to bring this error rate down. Guess who ends up getting stuck with those costs? So suddenly your business plan doesn’t look so good. Where you were expecting to drive the cost of processing each invoice down below £1, human intervention has resulted in costs being much higher.

Scanning and OCR has its place. Even allowing for the absurdity of taking an electronic file, printing it out on paper as an invoice, sending the paper to your customer for them to use an expensive process to turn it back into an electronic file – it has its place. But only if you build your business case based on there being a concerted effort to migrate from scanning and OCR to real electronic invoicing. You should aim over a three year period to turn a ratio of 80% scanned and 20% electronic on its head and have 80% submitted electronically. This is all about being good at persuading your suppliers to send you electronic invoices or online invoices. That is a whole subject on its own!

To see how a good e-invoicing deployment works download a case study here which shows how Essex County Council released 20 AP staff and will save £2.5 million next year by understanding the important distinction between scanning as a means to an end versus scanning as the answer. They now process tens of thousands of real electronic invoices – those that go from creation to delivery, to approval to payment without a piece of paper being created. Invoice scanning was merely a stepping stone which helped them to get there.

Suppliers rail against payment delays

If you’re seething about late trains … what about late payments? The rail industry has them both.

According to The Daily Telegraph, Invensys Rail has told key UK contractors they will have to wait up to twice as long to be paid.

No leaves on the line this time to delay a trip to the bank – or chequebooks buried under the wrong kind of snow.

But, rather, it’s a case of bringing payment terms ‘in line’ with company terms … which means payments two months after the month in which the invoice was raised, according to the report.

Of course, this shunts cashflow pressures down the line to the smaller companies that are coupled to the business.

And they’re feeling it. The Telegraph quotes one supplier saying: "Invensys was already one of the worst payers on 55 days and now it's another 30 days."

Fortunately, EGS has a solution that doesn’t leave suppliers waiting in the cold, agonising over unforeseen delays.

With our electronic invoicing solutions, our customers’ suppliers have multiple methods for submitting invoices incredibly quickly and electronically.

Likewise, our customers find it easier to pay their suppliers within the time agreed within established contracts. Invoice approval is highly automated and becomes a streamlined, hands-free process.

It’s fair, accurate, transparent and predictable. Put simply, everything runs on time.

Why Sir Philip should shop locally for the big answers …

I read about Sir Philip Green’s Efficiency Review with great interest – although the wasteful procurement practices in Central Government made for grim reading.

Sir Philip’s key findings included:
• Identical goods being purchased from the same supplier – but at different prices
• A lack of control and accountability over large budgets

I support the findings. But I would, however, make two points that I feel are important if the report is to have a tangible impact.

Firstly, the Government must move quickly to set out the next steps: highlighting inefficiency is one thing, doing something about it is another. The report has given the issue momentum and there is now a once-in-a-generation opportunity to make a real change to the way that Central Government procurement is conducted.

The second is that giving Central Government the tools to self-heal is not enough – there must be a change in culture before anything else can happen. Sir Philip highlights a culture of “no motivation to save money or to treat money as your own”. This can be overcome to some extent by using the right tools, but the mindset must change as well.

My experience of working with Local Government is that changing culturally deep-rooted processes and introducing tight control through the deployment of technology is the way forward.

Only then can organisations centralise procurement for commodity goods, enforce the necessary controls to ensure compliance and achieve huge financial savings.

Collaboration can play an important role too. Organisations – such as councils – that share services can achieve economies of scale and buying power that are normally only available to much larger enterprises. And this has happened across regions of the UK for EGS’s customers.

If Sir Philip’s report describes the ‘before’ state of affairs for Central Government, I would offer some of England’s County Councils as what the ‘after’ picture may look like.

Sir Philip states that: “the prize for the tax-payer is too huge not to chase”. I welcome this message and encourage the Government to look no further than Local Government to see a clear example of what can be achieved by embracing a centralised approach and procurement technology to introduce efficiency and control.

E-Procurement Guru joins BBC debate

What do Sir Philip Green, efficiency, pension schemes and the meanings of company names have in common?

Answer: They were all topics discussed during the pilot episode of the new BBC series Show me the Money.

One of our E-Procurement Gurus, Peter Whent (pictured above left) joined host Declan Curry and other guests at the studio this month for lively analysis of big business stories making the headlines.

The debate centred on

• How EGS is making local government more efficient
• Sir Philip Green's report on savings
• The new National Employee Savings Trust pension scheme
• The significance of the name of a company

In due course, we’ll announce when this episode will be broadcast and provide a link to the BBC iPlayer. The series begins on Sunday evening.

"Show me the Money" will go hand in hand with the BBC 5 Live series "On the Money".

Expertise is worth its salt and pepper

At the weekend, I visited an old pal from my football-playing days. He’d moved to a new house and was keen to show me around.

But it wasn’t the spacious hallway, plush carpets and five bathrooms that impressed me most. It was the contents of his fridge.

“Take a look at this,” he said, as the door of his giant American-style cool cabinet opened to a reveal a shelf packed with assorted, wild fungi. It’s mushroom season in the UK.

Now, I know what you may be thinking. Exotic mushrooms = magic mushrooms = hallucinates. Right?

Well, no. These were forest fruits of the culinary kind. And he had the recipes books as an alibi.

Back to the fridge …

I don’t know the Latin names. But we’re talking about a rack of chunky mushrooms the size of cricket balls. “Press in your finger and the flesh on these ones turns blue,” he invited.

Then there was a tray of what looked like mini, bright yellow cabbages. In between them were a smattering of toadstool-lookalikes with a fantasy quality. My mind wandered to those Yes album covers of the 1970s by Roger Dean.

“Aren’t you taking a risk?” I said, safe in the knowledge that we weren’t stopping for dinner. “Ah, you’re thinking of those people who died after mistaking these … for these …” he explained. He then led me on a detailed, David Bellamy-style forage through fields, forests and woods via a stack of expert handbooks, peppered with his own tales.

I made a very weak and predictable joke: “You’re a fun guy”.

“No, the correct term is mycologist”, he replied. And then the penny dropped.

Over many years, my friend had become a proven expert in something very specialist, where the risks were great, but the rewards were high.

The right restaurants would pay handsomely for his forest fare. I could visualise the ‘specials board’. But getting it wrong would effectively turn him into a mass killer – and destroy their business. It was his expertise that made the difference.

I could see an immediate parallel. Procurement solutions and electronic invoicing are too important to take a chance on a partner that lacks experience. The margin for error is tiny, perhaps non-existent.

If your organisation is making 100,000 online transactions per year and receiving a similar number of electronic invoices from a few thousands suppliers, then it has to go right … every time. And that’s where proven solutions, best-practice processes and leading expertise are well worth their salt.

Disclaimer: This article may inspire people to go mushroom-hunting – but it should not be taken as advice of any sort. Be aware that some fungi can KILL. The E-procurement Guru takes no responsibility in this matter. Always consult an expert before picking and eating what you find!

Close encounters of the procurement kind

A new report in The Daily Telegraph says that Government procurement processes are 'alien' to some small businesses.

Apparently, an employers’ group claims that small creative firms are struggling to win design business, including contracts associated with the Olympics, because of the complex and lengthy procurement procedures.

Of course, design companies are a specialist breed. You cannot catalogue what they offer in quite the same way as Wellington boots or minibuses.

But the story highlights a problem that can be faced by all small companies attempting to sell goods and services to larger organisations.

They often speak different languages and share different business cultures. And, in particular, their processes and IT systems can be vastly different species. Worlds apart.

So, what can be done to make ‘first contact’?

The best purchase-to-pay (P2P) systems provide flexibility that suits everyone. Put simply, if large organisations take a few small steps … this can represent a giant leap for their suppliers.

• Firstly, organisations can commit to creating a level playing field, fair to everyone. So, it doesn’t matter if your supplier is the world’s biggest furniture store, or the corner cake shop.
  
  
• You can enable tiny suppliers to trade electronically, even if they don’t have a web site or even a computer – but just a mobile phone.
  
  
• You can allow their goods and services to become visible online to your buyers – just as conveniently as those of the world’s biggest stores.
  
  
• It’s possible to enable the small suppliers to receive orders instantly and electronically – with all the purchase order information they need.

• You can make it easy for them to invoice electronically in moments – and also to check on the progress of their payments.

Put simply, they can carry on being a small business … doing what they do best and providing their specialist service, not being baffled by IT and red tape, or being squeezed out by system-savvy bigger boys.

Every team should have a Plan B

The match is finely balanced … but then you go 1-0 down. And there’s only 15 minutes left. What do you do?

As football fans will know, you need a Plan B.

When your keeper spills the ball into the net, your star player gets sent off, or there’s a siege around your goalmouth, then something needs to change. And fast.

In the past, the England team has been accused of being one-dimensional … unable to make a tactical switch during a game and turn the tide. Throwing on leggy Peter Crouch and pumping long balls into the box doesn’t always save the day.

Manager Fabio Capello has tried his best at adding more to the team. In fact, many overseas managers are renowned for their on-the-fly decisions. There’s José Mourinho (now at Real Madrid), or another former Chelsea boss, Claudio Ranieri (now at AS Roma), who was even nicknamed ‘The Tinkerman’ for his tactical tweaks.

What happens in the dug-out can change games. And the same is true for ‘managed’ procurement systems. You have to be prepared for the unpredictable.

Here are four tactical examples:

• Maximising performance: Unexpected spikes in demand must be accommodated seamlessly – to avoid system slow-downs. Good hardware boosts performance. But the best tactic is to get the database working intelligently, so it answers queries efficiently, first time around.

• Smart positioning: Storage doesn’t cost premier-league prices – but server space fills up quickly. It’s essential to think several steps ahead and make accurate predictions about your upcoming needs.

• Keeping pace with the game: Any decent procurement system will always be improving. The trick is to keep re-evaluating the functionality and finding better ways of working – while second-guessing customer requirements.

• Defensive measures: It’s vital to keep checking the system architecture to avoid weak points and maximise resilience and redundancy.

But the main thing is knowing your opponent. In this case, it’s the system itself – and the fast-changing business arena. A mixture of strategic thinking and responsive, in-house expertise is the key to success.

Procurement may lack the pizzazz of the ‘beautiful game’ – but none of the importance. There are billions of pounds at stake – with a vast crowd of purchasers and suppliers watching on. The game has started. But it never ends …