Early Payments Translate Into Big Savings For Gas Company

The Williams Cos., which operates 15,000 miles of natural-gas pipelines, has found that using a new Web-based system to pay some of its bills earlier than the standard 45 days will help it save $1 million a year.

Seven months ago, the company started a Web-based electronic invoicing system for its suppliers that includes early-payment discount programs. Those programs have been embraced by more than a quarter of its 4,500 suppliers, which include mechanical-parts manufacturers, land-survey services firms, and real-estate companies.

The system is based on four software modules from Xign Corp. that automate processes beginning with the ordering of products and services until they're paid. The system is doing its job of eliminating paper and making the entire order-to-payment process more efficient, but a bigger-than-anticipated financial benefit is coming from the discount programs. "The original goal was to save $100,000 in the first year," says David Lambert, project leader at Williams, which supplies gas for heating and electricity. Now Williams is on target to save $1 million in the first year with the system.

Suppliers have five discount programs to choose from. For example, one dictates that if Williams pays the supplier within 20 days, the supplier gives Williams a 1% discount. Reports within the Xign system tell Williams what it's saving, and the system provides alerts when other discount opportunities become available through a supplier option called "Pay Me Now." That option allows a supplier, regardless of predetermined payment terms, to request an individual invoice be paid immediately. The system calculates the discount the supplier needs to provide in order to get the early payment. "We're finding smaller suppliers are using this feature more aggressively," Lambert says, as cash flow is often critical to small and midsize companies.

Before the electronic system, Williams mailed payments to suppliers through the U.S. Postal Service about 30 days after receiving the invoice. By the time the check was cashed, 45 days had typically passed since invoicing. With the new system, suppliers provide invoices via the Web and can check the status of payments online.

While some are utilizing the early-payment program, about 70% have continued with the 45-day payment term. The discount program cuts overall procurement costs by about 2%, Lambert says.

With the system, an electronic-payment signal is submitted from Williams to the bank, which worked with Xign to test and secure the transaction signals. When suppliers enroll in the E-payment process, they enter their bank account information and maintain it through Xign, which verifies the data and activates the supplier account.

Williams' financial applications run on an Oracle platform. All four Williams divisions are migrating to the Oracle 11i platform from various other packages. When the migration is complete midyear, the Xign software that enables the E-payment services network will integrate into Oracle's workflow-management system.