Electronic Signatures: The Definitive Guide
The modern world uses electronic signatures on a daily basis. Digital agreements are a part of everything we do online and in the most important of our affairs. To sign these online contracts, you need an electronic signature. An effective digital signature can make or break your agreements, and you need the most effective tools to help you get there.
What is an electronic signature? An electronic signature is a person’s affirmative assent to be bound to an agreement. This assent is shown through a digital signature, clickwrap agreement, or another digital method. An electronic process, sound, or symbol may be used to prove this assent.
What constitutes a signature?
The modern era has changed the traditional definition of a signature. Many people still associate the word “signature” with pen-to-paper writing. But the reality of what now constitutes a signature is much broader.
In today’s world, a signature manifests a person’s affirmative assent to be bound to an agreement. While this used to be limited to traditional written signatures, the digital era offers many new ways to prove this assent to the contract.
The usual “signature” most people think of is the wet signature. This occurs when a person or business physically signs a document with a pen on paper. This traditional method still necessitates negotiations by telephone, mail, email, or in person. This is a slow process, especially considering the fast-paced digital world we live in now.
Many companies still require a wet signature, often because leadership believes this is the safer method. In reality, current electronic signature methods are safe and reliable ways of creating an enforceable agreement. Other companies still use wet signatures because “it’s how we’ve always done it.” But with the modernization of digital contracting technology, more effective methods exist, making wet signatures unnecessary.
While a wet signature is an enforceable method, it creates limitations, including:
- Long delays in the agreement negotiation
- Requirements of a physical meeting and scheduling of that meeting
- Physical storage of the original contract
The evolution of signatures
Electronic signature technology has evolved significantly over time. Previous methods of contract acceptance include:
- Wet signature: The wet signature has been around for thousands of years. This used to be the primary method of signing a contract.
- Digital signature devices: The first “digital” signature method was a tablet or signature device that tracked an electronic pen, such as those used on credit card machines.
- Images of a signature: Some contracts utilize a picture of a signature used as the signature for a person or business. This is often copied and pasted into a document.
- Electronic signatures: A valid electronic signature includes clickwrap agreements or embedded signatures. They are far more efficient methods of gaining digital contract acceptance.
How to sign a digital contract
There are several useful ways to sign a digital contract. Knowing how to sign a digital contract and what method to use is essential to ensuring enforceable digital contracts. These methods include:
- Clickwrap agreements: A clickwrap agreement is the simplest type of e-signature. All the signor needs to do is check a box or click a button confirming they have read the agreement and agree to its terms.
- Sign-in-wraps: A sign-in-wrap e-signature is like a clickwrap agreement in several ways. A sign-in-wrap requires the user to create an account and use that account to access the agreement.
- Embedded contracts: An embedded contract is a bit more time-consuming. These are called application programming interface (API) signatures because they are embedded into the app or webpage. This makes it easier to gather acceptance and important data within the same software.
- E-signature signing: An electronic signature can be signed with a digital pen, mouse, or another device that makes it looks similar to a written signature. This may also be performed with a digital stamp or the user drawing their signature.
These different methods provide options for your company. In most situations, a clickwrap agreement is the best and easiest option to sign a digital agreement.
Clickwrap vs. e-signatures
Both e-signatures and clickwrap belong to the same family of click-to-sign contracts, although they are not necessarily the same. In fact, clickwrap agreements are considered more sophisticated and effective than other e-signatures. Choosing the right signature method for your needs can significantly impact acceptance capture rates and user experience.
Electronic signatures are usable in nearly every situation. E-signatures are useful for many online contracts, including tax returns, sales contracts, and even subscription agreements. E-signatures provide an easier signing method than a traditional wet signature. The entire signature process is considerably faster and can occur entirely online.
The potential downside of an e-signature is that it can be clunky or slow compared to a clickwrap agreement. It requires a separate signature method, such as an envelope-based signature. Envelope-based signatures are sent to a recipient to sign, and they must then send back a separate response with the signature. This often results in substantial delays in securing contract acceptance.
A clickwrap agreement is a form of single-click signature method. These are very useful in digital contracts and other online agreements. The user clicks a button or checks a box that states, “I agree.”
The clickwrap signature is a collection of data points that make up an audit trail by proving how the user “affirmatively assented” to the terms of the digital contract. The clickwrap then keeps accurate back-end records to prove that this acceptance occurred.
Clickwrap agreements are commonly used in updates to Terms and Conditions, subscription agreement updates, and many other business-to-consumer (B2C) situations. While common in B2C situations, business-to-business (B2B) organizations commonly use these agreements because they are highly enforceable and come with several other benefits.
Benefits of clickwrap agreements include:
- They are easy to sign because the user simply clicks to agree.
- They are versatile because they can be added anywhere in the workflow.
- They are designed to handle high-volume acceptance.
- They automatically create an accurate audit trail.
- They provide a seamless customer experience by making it easy to accept terms and conditions.
Similarities between e-signatures and clickwrap agreements
While they are different, e-signatures and clickwrap agreements do share similarities. Both types of agreements create legally binding contracts. Federal law makes both types of digital agreements legally enforceable. When properly designed and recorded, these digital agreements are just as effective as a written signature. While clickwrap agreements are easier to use, especially for consumers, both types of agreements are legally enforceable.
Businesses use both types of signatures. These methods streamline contract acceptance and decrease turnaround time for capturing that acceptance.
Electronic signature laws
Two primary laws govern electronic signatures, their use, and what constitutes a signature in the United States. These laws are complex and have very specific requirements. The right e-signature solution handles these requirements and makes it easy to comply.
The Electronic Signatures in Global and National Commerce Act (ESIGN)
The ESIGN Act became law on June 30, 2000. It creates rules that govern the enforceability and validity of electronic signatures. This also includes records for transactions that affect interstate or foreign commerce. The ESIGN Act is one of the primary laws making electronic agreements and digital contracts enforceable.
The law outlines the requirements for an electronic signature. Under the act, an electronic signature is defined as “any electronic sound, symbol, or process” that would be “logically associated” with the agreement. This broad definition covers many types of e-signature methods, including clickwrap agreements. Your company’s agreements must comply with the ESIGN ACT requirements to ensure your digital contracts are legal and enforceable.
A company must obtain the user’s prior consent with a clear and conspicuous statement that informs the consumer:
- Of all legal options or rights for the record to be provided or made available in paper or electronic form
- The right to withdraw consent of permissions
- If the legal consent applies only to a specific transaction or instead to different categories of records
- Of any procedures the consumer must utilize to withdraw previous consent
- How the consumer can request a paper copy of a record, and whether any fees apply to requesting that copy
The Uniform Electronic Transactions Act (UETA)
The UETA is a state law rather than a federal law. The National Conference on Uniform State Laws adopted the UETA in 1999, and the act has now been adopted as law by 49/50 states. The UETA actually predates the ESIGN Act and outlines additional obligations for electronic signatures and records not listed in the ESIGN Act.
The UETA gives legal protection for digital signature methods. It includes legal provisions that state:
- A record or signature may not be denied validity or enforceability just because it is in a digital format.
- An agreement may not be denied validity or enforceability just because a record was in an electronic format.
- If a law or regulation requires a document to be in writing to be enforceable, an electronic record satisfies this requirement.
- If a law or regulation requires a signature, a digital signature complies with the law.
European signature laws
Sixteen years after the U.S. passed the ESIGN Act, the European Union passed the eIDAS Regulation, which is short for “electronic identification and trust services.” This European regulation created a three-tiered signature rating and formed a service to verify the authenticity of businesses and individuals concerning electronic documents or signatures.
To use electronic signatures within the European Union, a person or company must use one of the following signature types:
- Standard Electronic Signature (SES)
- Advanced Electronic Signature (AES)
- Qualified Electronic Signature (QES)
E-signature laws in Australia
Australia was an early adopter of electronic signatures, beginning with The Electronic Transactions Act (ETA) passed in 1999. But until COVID-19 prompted the government to act quickly, there was still a long list of restricted transactions that still required a wet signature. Temporary measures allowed more flexibility during lockdown, but once expired, digital contracting began to regress.
Today the country is in a state of flux, working to enact legislation in keeping with the pace of technology and demand.
Five questions to help you evaluate e-signature tools
Choosing the right e-signature tool can seem challenging or even daunting. You can choose from several options, but not all e-signature options are created equal. C-suite executives and legal teams should choose the appropriate method to meet their needs. To do this, answering five questions can help determine what e-signature tool is best for your situation.
1. Does the e-signature solution integrate easily with other software systems?
Legal, sales, procurement, and numerous other departments use several types of software every day. These organizations need an e-signature solution that integrates easily and well with their existing systems. The e-signature solution should complement these systems and not require significant reconfiguration to get them to work together.
E-signature methods should also make the signature process seamless for users. Signing and capturing that signature in your existing systems should be easy. Users should be able to sign their agreement anywhere—from a laptop, tablet, or even a cell phone.
2. Does the method make signing easy?
The e-signature method should make it easy for the user to sign—no matter what type of device they are using. An effective e-signature method, like a clickwrap agreement, is a simple method that works on nearly any device. Other options, like embedded contracts, similarly make it simple for the user to assent to the terms of the contract.
The e-signature method should also make it simple to capture back-end acceptance records. An agreement means little if you cannot prove it was made. This proof is necessary for the enforceability of the e-signature and the contract.
3. Does the e-signature meet compliance and regulatory needs?
You need an e-signature method that complies with the legislation and regulations governing your business. These will depend on your particular business, practice, or industry.
You should ensure that your e-signature technology complies with all privacy legislation. This includes the California Consumer Privacy Act (CCPA) and the European Union’s General Data Protection Regulation (GDPR). These privacy laws obligate you to process, request, and store users’ personal data and signatures in particular ways.
Businesses must also keep complete and accurate records of who signed what document and when. This task can be difficult for companies with hundreds or thousands of simultaneous active contracts.
The e-signature method should utilize a dynamic contract repository that automatically keeps comprehensive records. It should be a centralized hub that stores records and makes them easily accessible to help comply with regulatory needs and compliance audits.
4. Does the e-signature software permit brand customization?
Your brand should permeate everything your company does, including how it collects affirmative consent to contracts. Your contracts should look like the rest of your company’s materials.
Your e-signature method should allow you to customize it to maintain your brand. Keeping your branding in the signature process increases customer trust and confidence in the signature method.
5. Does it help your company scale?
Your e-signature method should be able to meet your company’s needs at scale. Your company needs to be able to grow, and your e-signature method needs to be able to keep up.
You should consider the following to see if your e-signature method can keep up with your company’s growth:
- Does the solution let you deploy the e-signature behind a firewall or within the cloud?
- Does the solution offer clickwrap agreements or just less sophisticated types of e-signatures?
- Does the e-signature solution offer high-level encryption, security certificates, and other security features?
- Does the e-signature solution offer support in different languages and support access from other countries?
A growing business needs a highly flexible and adaptable solution to help it change and meet new challenges.
Choosing the right e-signature app
There are many options for digital signatures. Some of the ones you might have heard of include DocuSign, Adobe Sign, HelloSign, and PandaDoc. These platforms make it easy to sign the document but often lack the back-end capabilities of a more comprehensive contract management solution.
The right choice for digital signatures gives your company the following:
- A tool that makes digital collaboration easy for different departments and counterparties
- DocX native platforms for all digital signature methods
- A workflow designer with a drag-and-drop interface that makes it easy to create digital signatures, contracts, and approval processes
- A centralized contract repository for all digital signatures and agreements
- The ability to handle all contract types
- Pre-built templates to create new and manage existing contracts
- The power to edit contracts in real time
Manage e-signatures with contract management software
The right contract management software empowers you and your employees to self-manage electronic signature and digital contracts. Your business needs the tools to expedite digital signatures, store them, and create an automatic audit trail so you can comply with federal, state, and international laws on digital signatures and privacy laws.
Digital signatures save you time, money, and frustration compared to outdated signature models. With electronic signatures, you can ensure all parties are on the same page for negotiations, redlining, and acceptance.