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Invoice OCR vs. IDP: 3 Top Differences in the Popular Invoice Processing Tools

Catherine Canary, Appian
December 18, 2023

So you’re still processing invoices manually, huh? That's no way to live. If you’ve come here in search of a better way, you won’t be disappointed. Maybe you’ve heard terms like OCR and IDP thrown around and are looking for a little more information to help you get started.

I’ll answer questions like What is OCR invoice processing? How is IDP different from OCR? And is one always better? Let’s get into it.

What is invoice OCR?

OCR stands for optical character recognition. Invoice OCR is a technology used to turn uneditable text in scanned invoices or images into machine-readable language.

You know when you go to copy-paste a block of text and realize that you can’t highlight it? Then you have to decide whether it’s worth it to retype it all manually? It’s so frustrating. This is the problem OCR solves. 

Since scanned or unstructured documents and paper invoices are not machine-readable, OCR is usually necessary to automate invoice processing. Invoice data that’s been converted by OCR can be extracted, moved to an app or database, and used in automated workflows going forward.

💡 How does OCR work? OCR tools identify text characters in two ways: with either pattern matching or feature extraction. Pattern matching involves comparing each text character to a large set of stored characters in different fonts and typefaces. For pattern matching to work, the character in question must be a similar size and font to one of the stored characters. Feature extraction gets more granular, breaking down each character into smaller features—lines, curves, intersecting points—and using those details to find the closest match.

Limitations of OCR invoice processing.

Accuracy might come to mind when you think about possible limitations of OCR. But for invoice processing specifically, accuracy really isn’t much of an issue. OCR tools are highly accurate, stumbling mostly only when they encounter low-resolution images or particularly unconventional fonts or handwriting styles. Since invoices tend to be pretty clear documents with standard fonts and colors, OCR accuracy isn’t usually a huge concern. That’s not to say OCR is a silver bullet, of course. 

The main limitation of invoice OCR is that it’s not enough on its own. It’s almost always part of an automation solution—not the solution. OCR converts text into a machine-readable format, but to automate the rest of the invoicing process, you’ll need other technologies like robotic process automation, AI, and intelligent document processing

*Whispered aside to our Appian customers* You all don’t need to worry about this limitation because the OCR you’re using in Appian IDP or AI Skills is part of a fully equipped process automation platform.

[ Watch: Appian Platform Overview Video ]

What is intelligent document processing (IDP)?

Intelligent document processing (IDP) is a combination of OCR, artificial intelligence, and automation technology that lets you read, extract, classify, and use data from semi-structured and unstructured documents. For invoice processing, IDP tools can use OCR as needed to convert characters into machine-readable text, use natural language processing to read invoices instantly, extract relevant data and plug it into a company database or application, and flag any missing or unusual invoice information for human review. 

The benefits of IDP are clear: 

  • Reduce manual data entry by automatically extracting relevant information from invoices, such as vendor details, invoice amounts, and due dates. This not only accelerates invoice processing time but also minimizes the risk of human errors. 

  • Improve data accuracy in the accounts receivable and accounts payable process by using automation to capture information from a high volume of invoices with precision. 

  • Save on costs by cutting down on labor expenses and allocating resources more strategically. The real-time data extraction capabilities of IDP provide valuable insights for financial analysis, budgeting, and decision-making.

IDP brings you closer to a fully automated invoicing process. (And a process automation platform will take you the rest of the way.)

3 differences between OCR and IDP.

The two technologies are closely related. IDP is a larger document processing automation tool of which OCR is one part. Here’s how OCR and IDP differ:

1. IDP uses natural language processing to read data.

OCR makes text machine-readable. IDP is the machine that reads it. OCR technologies have no ability to identify meaning in data; they simply convert it into an editable, searchable format. IDP uses natural language processing to understand which data is relevant to invoicing, making it significantly more powerful.

2. IDP can extract and classify invoice data.

OCR stops at the text conversion stage. Once document characters are machine-readable, OCR is no longer useful. IDP, though, can extract relevant data like names, dates, and amounts from invoices and move that data into whatever system or database a company is using. It can also classify invoice types and sort their data differently, as needed (e.g., accounts payable vs. receivable invoices). That means IDP tools can help keep the invoicing process moving automatically. 

Without IDP, a human employee would have to manually read each invoice, find the needed data, and type it into their company’s financial system. Yes, OCR could help with the manual data entry part by enabling copy/paste . . . but OCR is really made to facilitate parsing by machines. That’s the most effective use case for the technology.

3. IDP has AI capabilities.

OCR is not an AI technology; IDP is, to varying degrees. Some IDP tools rely on rules more than AI model training to extract and classify relevant invoice data. Some IDP tools are paired with generative AI capabilities, making them able to summarize invoice data and write up findings and insights about it. IDP tools also employ machine learning algorithms to analyze and learn patterns from large datasets, improving their ability to accurately recognize and extract relevant information over time.

[ How can reducing paper processes like manual invoice processing help your organization? Get the eBook, 6 Advantages of Eliminating Manual Document Processing, to find out. ]

And what do IDP and OCR have in common? They’re both automation technologies, and therefore they both require some level of human intervention. The future of automation is mixed autonomy, and no technology should be left to run without oversight. Designate a human employee to handle exceptions flagged by AI and to spot check for accuracy.

Human employees are also responsible for training IDP AI models and programming rules to ensure they are processing invoices exactly how you want them to. This is another place a platform approach will make your life easier—with a low-code process platform, you can train your own AI models and add rules to your processes in just a few clicks. So much of the background coding is done for you.

Types of invoice documents you can process with OCR and IDP.

IDP and OCR technologies can be applied to lots of different types of invoices to automate data extraction and processing. You can customize the technologies to pick up on different nuances and kinds of data for different invoice categories, maybe for accounts payable vs. receivable. And if you work with multiple types of invoices, you can also use IDP to classify and sort them automatically. Here's a list of 15 common invoice formats and types that can be processed using IDP and OCR:

  1. Utility bills: for gas, water, or electricity.
  2. Telecom bill: for phone, internet, or cable.
  3. Expense reports: invoices submitted by employees for reimbursement.
  4. Travel invoices: related to travel expenses, including hotels, flights, and car rentals.
  5. Purchase invoices: for goods and services purchased by the company.
  6. Vendor invoices: from external suppliers and vendors.
  7. Service invoices: for services provided by external entities.
  8. Subscription fees: invoices for subscription-based services.
  9. Freight and shipping invoices: invoices related to shipping and transportation costs.
  10.  Consulting invoices: for consulting services provided.
  11.  Membership fees: invoices for membership or association fees.
  12.  Training and education invoices: for training programs or educational services.
  13.  Legal invoices: from legal services or law firms.
  14.  Healthcare bills: medical bills and invoices from healthcare providers.
  15.  Insurance premium invoices: for insurance premiums.

This list is, of course, not exhaustive. IDP and OCR can help you automate processing for any kind of invoice you can think of. 

[ Get the eBook for more than 200 ideas for how to use RPA and IDP, with use cases for multiple functions and industries. ]

Using a platform to automate invoice processing (and everything else).

OCR and IDP are both pretty much non-negotiable technologies for automating invoice processing. But neither is enough on its own. To fully automate any complex process, you really need not only document processing tools but also other automation tools like RPA. And if you want to easily customize your processes to match the specific kinds of invoices you work with, low-code development tools are a must-have as well. 

But why stop there? Platforms that automate invoice processing can also automate other organizational processes—in fact, they’re at their best when they’re orchestrating end-to-end workflows all across an enterprise. 

A process automation platform gives you IDP, OCR, AI, machine learning, RPA, business rules, low-code, data management capabilities, and visual process modeling all in one place. And by using a platform, you steer clear of the high costs required to maintain different software, perform complex integrations, and hire skilled resources to manage each separate instance of your technology. 

How to get started.

If you want to automate invoicing with OCR and IDP, a process automation platform is a great way to do it with just one investment. And while you’re at it, consider how a platform approach could help you automate other processes, too. Our process automation guide will walk you through how to get started.