Plenty Of Room For Growth In Invoice Capture Market

I’ve written several times over the past couple years about the success forms processing vendors have had automating invoice processing. Companies like ReadSoft, AnyDoc, Top Image Systems, Datacap, Captiva, Kofax, SER Brainware, and Peladon have all shared success stories with us. I’ve even done stories on vendors like I.R.I.S., ABBYY, and others pursuing the SMB market for invoices. In fact, with all the coverage we’ve given this space, you might think it was reaching saturation.

Not so, says a recent report from Boston-based research firm AberdeenGroup. According to the study, entitled The Invoice Reconciliation and Payment Benchmark Report, only 17% of companies surveyed are using OCR/ICR technology to capture data from invoices. And this is not because their businesses have successfully transitioned to electronic payments. Far from it. According to the report, more than 80% of invoices still come in on paper.

Paper Invoices vs. Electronic Billing

“I was surprised by the high percentage of paper invoices,” admitted Joe Basili, research director, global supply management, for Aberdeen. “I would have expected something like 50-60%. I think the higher percentage just proves that EDI isn’t the panacea many people thought it would be. The problem with EDI is that there really are no standards. Unless you’re somebody like Wal-Mart, that can drive its own standards, there’s really not a lot of automation in the billing process. Now, remember, these results focus on the number of invoices, rather than their value. I suspect the 15-20% coming in through EDI represent many of the higher-value invoices. Still, the volume of paper is significant.”

The 150 companies surveyed average 447,000 total invoices per year, with the highest total for a single company being 30 million and the lowest, less than 200. Fourteen percent report annual revenue of more than $5 billion, while 30% report less than $50 million. Thirty-nine percent fall between $50 million and $1 billion. Thirty-one percent of respondents were in the high-tech or software business, with a broad cross-section of industries (none of which accounted for more than 10%) representing the remaining 69%,

One interesting thing from my perspective is that this study takes into account much more than automated invoice processing. It discusses the benefits of increasing users’ overall visibility into their spending processes. “Our higher calling is to show that most enterprises do not have good visibility,” said Basili. “How often do you hear a public company misses its earnings forecasts because it has under-priced products and underestimated spending?

“It’s our belief that invoice processing should be looked at as a strategic initiative to improve management of a business. Improved invoice processing can help identify, in real time, areas in which spending is rising. This enables businesses to adjust their product pricing accordingly. Too many businesses look at processing invoices as merely a tactical issue and focus only on getting them paid.”

Advantages of imaging

According to Basili, the biggest problem with paper invoices is the lack of visibility they create downstream. “Thirty-nine percent of our respondents said they were still using paper-based approval,” he said. “It’s not uncommon for organizations to require handwritten signatures for approval. The biggest benefit of document imaging is that it reduces the transit costs of moving paper documents through an organization.

“Imaging enables users to set up processes like automatic notifications if an invoice isn’t approved in a timely fashion. Because the imaged invoice can be linked to a back-end system, the person approving it has more visibility into additional information. Image-based workflow and routing can reduce costs by enabling users to take fuller advantage of early pay discounts and/or reduce their late payment penalties.”

While image-based workflow seems like a slam-dunk for invoice processing, Basili noted that the jury is still out on OCR-based data capture. “The use of OCR is still fairly controversial,” he said. “Early adopters did experience some challenges. Opponents of OCR say it requires so much data correction and accuracy checking that you might as well do manual key-entry.

“However, there are indications that OCR applications have advanced from their early stages. This would explain the renewed interest we have seen in the technology. Proponents say the accuracy is great, and you only have to check the small percentage of fields flagged by the system. In addition, the introduction of SaaS (software as a service) and on-demand software deployment models means users don’t have to make as large an upfront investment in OCR. If it doesn’t work out, they can stop using it without having sunk a lot of money into software.”

According to the Aberdeen report, in addition to the 17% of companies currently using OCR on their invoices, an additional 23% plan to add it within the next 12 months.

Current and Planned Use of IR&P Automation

Capture: a piece of the puzzle

Basili stressed that imaging and OCR represent only two aspects of improving invoice processing. “In addition, we recommend organizations look at increasing their use of practices such as EDI, purchasing cards, and electronic marketplaces. Best practices call for the use of all these technologies, some of them in combination. For example, vendors in the electronic marketplace space, like Ariba and OB10, have adopted OCR to help their clients convert invoices into a format that can be processed within their applications.

“Yes, paper continues to be the default format for billing, but we recommend that vendors selling scanning-based invoice processing solutions take a look at the bigger picture. They would do better to speak with organizations about increasing their visibility into the payment process, rather than focusing on tactical issues, like reducing data entry costs. The strategic message is the one that will bring in deals and move things forward.”

For more a complete copy of the Aberdeen report, go to

www.aberdeen.com/summary/report/benchmark/RA_IRP_JB_3185.asp