How Optical Character Recognition (OCR) is Transforming Accounting

Optical Character Recognition or OCR is transforming accounting by reducing data entry for accountants. (Use our guide to find the expense reporting software with OCR that’s right for you).

Software with OCR can take on time-consuming tasks, allowing professionals to focus on more value-add activities. But first things first:

What is Optical Character Recognition (OCR)?

Here’s the meaning of OCR: Optical Character Recognition is a technology that extracts text from an image and converts it into editable and searchable data. Think of OCR as a scanner that has evolved far beyond photocopying. OCR can do handwriting recognition, which means it can read and store printed or handwritten text. Handwriting recognition provides a huge benefit to accountants who spend time manually coding documents including receipts, checks, and invoices. Hallelujah!

While OCR has only recently started to disrupt accounting, it is by no means a new technology. Some of the first computerized applications of OCR date back to the 1950s. In 1951, a Department of Defense engineer created an elementary scanner that could interpret Morse Code and read messages aloud. The US post office has used OCR for over thirty years to scan printed or handwritten address labels. As digital cameras and processing software modernized over the past 10 years, the speed and accuracy of OCR has improved. As a result, the applications of OCR have expanded across industries.

While the benefits of OCR in accounting are transformative, enhancements can still be made to how accurately OCR can convert data from both structured and unstructured documents.

Optical Character Recognition and Structured Documents

What is a structured documents? It’s a document that follows a static layout, such as checks. A structured document’s key data is always found in the same place. This standard format is ideal for Optical Character Recognition software.

You’re likely to be familiar with one particular use of OCR and structured documents: Depositing checks using your mobile phone on a bank’s mobile app. The efficient point-and-shoot method of depositing checks is a great first step for OCR. When you snap a picture of your check, OCR knows precisely where to look and what to look for. Checks even use the same block-like font — based on magnetic reader technology — for routing and account numbers.

Having this kind of structure in place dramatically improves the accuracy of OCR in these use cases. However, even despite the uniformity of structured checks, banks still require the user to enter the total check amount, leaving part of the data entry to you.

Tallie Optical Character Recognition

Tallie Optical Character Recognition

Optical Character Recognition and Unstructured Documents

What is an unstructured document? Documents that vary in formatting, such as bills and receipts, are considered unstructured documents. The variation makes these documents difficult for Optical Character Recognition to interpret. Fortunately, we are witnessing a breakthrough moment for unstructured OCR.

Technology titans such as Google and Microsoft are investing heavily in OCR applications. We are beginning to see the gains. For example, Google Translate allows users to take a picture of foreign text, such as a traffic sign or a menu, and receive a translation on the spot.

To share these OCR developments with the broader tech community, Google released Cloud Vision: A smart image analysis tool that gives startups access to OCR technology without having to build the OCR software in-house themselves. Cloud Vision is a win-win for consumers and businesses alike.

Even Oxford University has joined in on the fun, releasing a series of publications on text spotting. The renowned institution has developed a technology that can read words in non-standard fonts and handwritten text, and interpret the information much like our brains do.

OCR Tallie

Optical Character Recognition Map – Tallie

OCR Isn’t Perfect (Yet)

As a result of the ongoing investment, optical character recognition software is beginning to assume more and more data entry responsibilities for accountants. Automating this process will take a significant burden off of accountants. However, the primary obstacle for adoption in our profession is accuracy.

Today, we see OCR accuracy in the 80% to 90% range for unstructured documents and greater than 90% for structured documents. Although imperfect, accountants are beginning to leverage OCR to shift their time from data entry to data review.

For example, OCR within Tallie’s expense reporting tool means that employees simply snap a photo of their receipt and submit their expense report. The rest of their expenses data — such as the merchant, date, and amount — is auto-populated. From there, finance and accounting admins simply review expense reports in one place before approving and sending to accounting and bill pay systems.

This phenomenon will have a lasting and transformative effect on the daily responsibilities of accounting teams.

Want to incorporate OCR into your expense management? Our guide shows you how to find the best expense reporting tool for your business. Download it here.