Everything You Need to Know About Digital Contracts

digital contracts

The US eCommerce market accounted for a mindboggling $343 billion in revenue in 2019 alone. That makes the sector the second largest in the world, behind China and ahead of Japan. 

As the eCommerce industry continues to skyrocket, countless transactions are conducted online every minute. These transactions involve financial agreements that are almost always entered into electronically. That’s because, in eCommerce, the parties involved hardly ever meet face to face.

That’s where digital contracts come in. But what exactly is a digital contract? Is it valid, safe, and legal?

These are just some of the issues that we will address in this comprehensive guide. Read on to learn more.

What Is a Digital Contract?

Also known as an e-contract, a digital contract refers to an agreement that’s created and signed in electronic form. In other words, no paper is used throughout the agreement. For instance, you can write a contract on your computer and send it to a business associate via email, so they email it back with an electronic signature if they accept the terms of the contract. 

A “click to agree” contract is also a form of a digital contract. Once the user clicks the “I agree” button,” they complete the transaction.

What Is an Electronic Signature?

An electronic signature, also known as an e-signature or an e-sign, refers to a digital symbol or file that a person places on or attaches to an e-contract to indicate their intent to sign the contract. There are various ways to e-sign a document, including typing your name into the signature area, clicking the “I accept” button, pasting a scanned version of your signature in the signature area, and using cryptographic scrambling technology.

Why Are Digital Contracts and Signatures So Important?

That e-contracts and e-signs are a part of our daily lives is no secret. That’s primarily because of how convenient they are. 

An electronic contract allows you to operate your eCommerce business without ever needing to meet the customer face to face. E-signatures allow the other party to sign the digital document wherever they are. No one wastes time signing, printing, or using paperwork. 

The Legality of Digital Contracts and Electronic Signatures

Are digital contracts legal? Is e-sign legally binding? These are two of the top questions on the minds of most people today. 

The simple answer to both questions is yes. E-contracts and signatures are as legally binding as contractors signed using pen and ink. The law states that as long as the parties involved in the transaction agree to this particular method of signing a contract, then e-contracts and signatures are valid. 

Are E-Contracts and Signatures Secure?

The prospect of putting your personal information or essential documents is often scary for some consumers. The good news is that the security measures that are involved in digital contracts and e-signs have come a very long way over the years. That’s why e-contracts are so highly trusted by businesses of all sizes.

There’s a lot that goes on behind the scenes the moment a user clicks on the signature button on a digital button on an e-document to ensure that the person signing the document is who they say they are. All the information contained within the file remains secure. 

That said, it’s essential to know that some e-signing options have higher levels of security than others. As we mentioned earlier, there are several ways of e-signing.

Some of the less secure methods of e-signing include typing the user’s name into the signature area and placing a scanned pen-and-ink signature into the signature area. While these e-signatures are legally binding, it can sometimes be difficult to confirm whether the person who placed the signature is the same signer you intended.

So what e-signatures are most secure? You can opt for digital signatures that use digital identification for authentication of the signer. After the user signs the e-contract, the signature is digitally bound to the contract using encryption. 

The key to ensuring the utmost security when it comes to e-signatures is to choose an online signature generator that explains clearly what measures it has implemented to protect users who receive and sign documents. The best signature generators scrutinize all signatures on the contract, the date and time of signing, the IP address, and so on. This way, you have a comprehensive audit trail for every e-signed business document.

E-Contract and Signature Requirements

There are stipulations and laws that organizations and individuals must follow to make digital contracts and e-signatures enforceable and valid. These include:

Obtaining the Consent of Signers  

A signer has to freely consent to using a digital contract or to e-sign. They can indicate their consent by e-signing the emailed contract. However, there are instances where there has to be an explicit agreement by the consumer to do business electronically.

Informing the Signer What the E-Signature Means

The signer should receive an indication that once they sign the document, they’ll be bound to the terms and conditions of the contract. It needs to be clear that they aren’t signing to indicate that they received or read the document.

Offer the Signer Other Options

Digital contract laws make paperwork unnecessary in numerous situations. However, some consumers may prefer using paper instead. In most states, the law requires that people who wish to use paper be allowed to do so. 

Let the Signer Know That They Can Withdraw Their Consent 

You need to let the signer know that if they wish to, they can withdraw consent to use digital contracts or e-signatures at any time. Explain the procedure of doing so.  

Keep Copies of the Contracts 

If you are the one creating the e-contract, be sure to keep digital or physical copies of the documents once they’ve been signed. Provide these copies to the signer as well. If you cannot provide them with the copies for some reason, inform them of the process of getting the copies.

To ensure that all parties are complying with the current e-contract and e-signature laws, it’s important to consult with a seasoned lawyer to review your digital practices and disclosures. 

Opting Out of Digital Contracts

We already pointed out that consumers can choose to opt-out of e-contracts and use paper instead. As an organization, you have an obligation to let your clients know if paper contracts are available so that they know that they are allowed to switch to paper in case they change their minds.

What fees, if any, do you charge for using paper? Let your clients know that from the outset. 

State all the software and hardware necessary for reading digital contracts, so it’s easy for your consumers to decide whether they’d rather use paper or not. If any of your requirements change, let your clients know too, as this may also be reason enough for a consumer who was comfortable with e-contracts wants to opt-out.  

How Do You Create Electronic Contracts?

All contracts contain the same aspects, whether they are on paper or are electronic. So, how do you create an electronic contract?

The first step is to shop for suitable e-contract software. You can try out some demos and compare templates to find one that works for you. You can also opt to use an online e-contract generator.

Next, create the e-contract using your chosen software. Place updated contact details on the first page as well as after the signatures. You can adjust different aspects of the digital contract to suit the needs of your clients, regardless of the tool you’re using. 

The best thing about creating an e-contract is that you can adjust terms without worrying about crossing out lines or using additional paper. 

After you’ve adjusted terms, add a section for e-signatures for the parties involved. This section should include spaces for:

  • Names 
  • Job titles
  • Social Security numbers
  • A standard signature line 

The above section identifies and binds each party to the e-contract. Always make a hard copy of each digital contract. 

Make sure you ban editing options before sending it to the signer to prevent any accidental adjustments to the document. The software you’re using has security features that allow you to do this. 

Situations Where You Cannot Use Digital Contracts and E-Signatures

While e-contracts and signatures are widely accepted in many situations today, there are still certain situations that demand paper documents and pen-and-ink signatures. These include:

  • Wills, testamentary trusts, and codicils
  • Divorce, family law, and adoption
  • Court notices or orders
  • Other official court documents such as briefs
  • Notices regarding someone’s rental of their primary residence
  • Notices of cancellation of utility services
  • Notice of recall
  • Notice of cancellation of life or health insurance
  • Documents that accompany the ferrying of hazardous substances

Now You Know Everything About Digital Contracts

There are endless reasons why organizations and individuals prefer digital contracts and e-signatures. Unless a client insists on using a paper document and a handwritten signature, a digital contract affords all parties involved speed, convenience, and affordability.

Would you like to learn more about digital contracts? Please keep visiting our blog for featured articles.