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How Does Optical Character Recognition Work?

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Last editedJul 20222 min read

Optical character recognition (OCR) allows individuals to identify printed characters across a range of media, including PDF files and images, using software and devices. OCR technology enables people to extract and alter document content by transforming it into code which can be used for data processing.

In this post, we’ll define optical character recognition in detail and take you through some of the key ways it can help your business.

Optical character recognition: definition

Sometimes known as text recognition, OCR refers to the process of translating text from a document into code that can be used in data processing. It can work on both handwritten text, printed text and across multiple file types, including pdfs and images.

How does optical character recognition work?

The initial step of the OCR process is the scanning of a document. The scanned image is then studied for light and dark areas, with the dark being identified as characters to analyse and record. Once all the characters have been recognised, the information is converted into code. This code can then be employed by different software for auditing and analytics.

OCR optical character recognition origins

In the early 20th century, primitive OCR was developed as a tool for the visually impaired. It was initially a telegraphic system which could convert text into speech.

Some years later, a handheld scanner known as an optophone was invented. This apparatus produced tones which could be deciphered into words. It’s a similar function to your smartphone being able to read texts out loud.

Today, OCR technology is used for a variety of purposes, from scanning licensing plates to depositing cheques.

How to use optical character recognition in your business

Businesses across the globe utilise OCR technology to leverage capabilities and make their operations more efficient. Indeed, the technology has been adapted for use in a number of ways beneficial to workplaces.

Below are some of the key ways optical character recognition can be used in business:

Streamline invoicing

OCR technology can be used to speed up invoice processing. As invoices are often sent and received in several different formats, including physical paper copies, PDFs and other document types, it can often be an arduous process to log, record, key in data and track invoices.

With OCR, both paper and digital invoices across many formats can be scanned and the relevant data extracted with ease, transforming invoice management into a much more efficient process.

Plus, moving to automated invoicing reduces the admin needed with paper, and ensures records are stored safely. GoCardless partners with major accounting software, such as Xero and QuickBooks, making it easier to collect payments on time while reducing financial admin.

Digitise paper documents easily

Another primary use of OCR within organisations is as a means to create digital copies of paper documents which can be stored on the cloud and easily accessed.

Healthcare organisations, for instance, use the technology to digitalise patient notes and medical records to store on a cloud-based database. This helps make the process of accessing patient medical files much easier and more secure, as well as saving physical space in filing cabinets.

Legal firms also use the technology to the same end: to digitalise and legal documents for records and research. However, naturally this can be used by businesses big and small for the same purpose.

Facilitate expense tracking

Another key use of OCR for companies is business expense tracking. Employees can simply take a photo of a paper receipt using their smartphone, and with the help of an app which utilises OCR, transform the receipt information into digital data which can be sent to accounting teams.

Business expenses can therefore easily be recorded and stored on the cloud for access by accounting, eliminating the need for businesses to keep hold of paper receipts — saving both time and space.

We can help

GoCardless is a global payments solution that helps you automate payment collection, cutting down on the amount of financial admin your team needs to deal with. Find out how GoCardless can help you with one-off or recurring payments.