Managing cash flow effectively is crucial for business survival. A key component of this is efficient invoice processing, which ensures timely payments and healthy financial operations.

In this guide, we'll explore what invoice processing is, how it works and compare AI-led and OCR-led approaches so you can decide which option might work best for your business.

What is invoice processing?

Invoice processing is the management of supplier invoices, from receipt through to payment. This critical business process is usually conducted primarily by the accounts payable team or department, but for many SMEs, founders are often tasked with this role. It encompasses the end-to-end management of accounts payable, including validation, recording, and settlement of invoices, ensuring accuracy and efficiency in financial transactions and compliance with financial policies.

How does invoice processing work?

The invoice processing workflow will typically involve the following steps:

1. Invoice receipt: Suppliers will submit their invoices via various channels, which can include postal mail, email or electronic data interchange (EDI).

2. Invoice registration: The received invoices are logged into your accounting system, where essential details like invoice number, date, supplier information and amounts are captured.

3. Invoice matching: The invoice is cross-referenced with relevant documents, such as purchase orders and delivery receipts, to verify their accuracy and authenticity.

4. Approval workflow: The verified invoice is distributed to authorised personnel for approval and sign-off. 

5. Payment authorisation: Once approved, the invoice is scheduled for payment according to the agreed-upon terms.

6. Payment execution: The payment is processed through methods like bank transfers, cheques or electronic payments.

7. Archiving: After payment, the invoice and related documents are stored (electronically, in most cases) for record-keeping, auditing and compliance purposes.

Executing each of these steps efficiently is vital to maintaining strong supplier relationships, managing cash flow and ensuring smooth business operations.

AI vs OCR for invoice processing

Advancements in technology have introduced tools like OCR (optical character recognition) and AI that help to enhance the efficiency and accuracy of invoice processing. Understanding their functionalities, advantages and limitations can help businesses choose the most suitable solution.

OCR-led invoice processing

OCR technology scans printed or handwritten documents and turns the text into machine-readable data. In the context of invoice processing, OCR systems are used to digitise invoice information, which allows for easy and convenient electronic storage and retrieval.

Advantages:

• Speed and efficiency: OCR automates data extraction from invoices, reducing the time required compared to manual data entry

• Cost reduction: By minimising manual intervention, OCR can lower labour costs associated with data entry, reducing your business’s outgoings

Disadvantages:

• Accuracy limitations: Traditional OCR may struggle with unstructured or non-standard invoice formats, which can lead to errors in data extraction

• Lack of contextual understanding: OCR systems cannot interpret the content of a scanned document, which limits their effectiveness in complex scenarios

AI-led invoice processing

AI-driven invoice processing utilises machine learning models to not only extract data but also understand and interpret the content of invoices. This approach enables more intelligent and adaptable processing.

Advantages:

• High accuracy: AI solutions can achieve accuracy levels of over 98%, significantly reducing errors compared to traditional OCR

• Adaptability: AI systems can handle diverse invoice formats and variations, learning and improving over time to accommodate different layouts and structures

• Enhanced efficiency: By automating complex tasks and reducing manual oversight, AI can expedite invoice processing cycles, saving you valuable time and money

Disadvantages:

• Initial investment: Implementing AI-based solutions can involve higher upfront costs and also requires integration with existing systems

• Complexity: Deploying AI technologies can be complex and may necessitate specialised expertise during the initial setup phase
  
  
  

Choosing between AI and OCR - which one is right for your business?

When dealing with late payments and cash flow challenges, the choice between AI and OCR depends on the specific needs and requirements of your business. Some factors to consider include:

• Volume and complexity: High volumes of invoices with varying formats may benefit more from AI's adaptability and accuracy

• Budget constraints: If you have a limited budget, OCR may be a more cost-effective starting point. (But don’t forget the potentially costly limitations in accuracy)

• Scalability: AI solutions offer greater scalability, making them suitable for growing businesses anticipating increased invoice processing demands
  
  

While OCR provides a foundation for digitising invoice data, AI-led invoice processing offers a more robust and efficient approach, particularly for handling diverse and complex invoicing scenarios. Assessing your business’s specific requirements and resources will help to guide you in selecting the most appropriate solution that will enhance your invoice processing workflow.

Mimo Fetch

With Mimo Fetch, invoice processing is made a whole lot easier – wth smart features that collect, process and pay invoices seamlessly, there’s absolutely no manual data entry required.

With Mimo Fetch, you can:

• Fetch invoices and documents with ease: Forward any invoices to Mimo or connect your Gmail for automatic imports - no manual uploads needed!

• Save hours with instant AI extraction: No more waiting on slow tools. Mimo’s AI instantly pulls and organises all relevant data 

• Stay in control without context switching: Code, publish and pay, all in one place—no more jumping between tools.

• Quit chasing documents: Track unreconciled transactions and collect outstanding docs with automated workflows and up-to-date client portals

Sounds good, right? Get in touch with a member of our team to find out more.