What is an Online or Electronic Signature? Are e-signatures legally binding? See the FAQs below:
What exactly is an e-signature?
An electronic signature (or —as the cool kids are calling it— e-signature) is a way legal way to give or attain consent on electronic documents. Essentially, it performs the same function as an inked signature and an electronically signed document bears the same weight as a regular pen-and-paper one.
Moreover, it can replace a handwritten signature in virtually any circumstance, as long as they are legally binding in the country it's signed.
There are different ways to sign electronic documents, including with a mouse-click or by drawing a signature on a document using a mouse. Using a mouse to try and replicate a signature isn't an easy task (especially for those of us who aren't artistically gifted), but —thankfully— touch screens have made this much easier over the years.
Are electronic signatures legal?
An electronic signature is defined by The ESIGN Act, as “an electronic sound, symbol, or process attached to or logically associated with a contract or other record and executed or adopted by a person with the intent to sign the record.” Simply put, electronic signatures are in fact legally binding and recognized as a viable technology and an overall approach.
From e-commerce to the automation of complex business processes, to succeed in today's competitive world - business leaders must embrace and leverage all things digital. One of those things is electronic signatures and whether or not they are a legal signature. Business professionals across industries are putting away their pens and leveraging the numerous advantages of electronic signatures. Perhaps it's about time you did too.
What's the difference between electronic and digital signatures?
The terms "electronic signature" and "digital signature" are often used interchangeably. However, doing so isn't entirely correct. So what's the difference?
Basically, "e-signature" is a broad category that encompasses various types of signatures (we'll look at those later on!). Digital signatures are one of those categories but refer to a specific technological implementation of e-signatures.
Digital signatures are typically authorized by certification authorities, whereas electronic signatures are often associated with a contract where the signer has the intention to sign. Moreover, a digital signature is comprised of unique features, a fingerprint for example, that secure a particular document. The main differences are in purpose, geographical use, legal and cultural acceptance, and technical implementation.
What is an electronic signature used for?
Large enterprises, small-medium businesses (SMBs), and freelancers can use e-sign software to streamline their business operations. An electronic signature can be used to formally sign a contract, document, or another type of electronic form.
Many businesses and freelancers have adopted services for electronic signing into their tech stack. Some of the situations e-signatures are frequently used include:
- Sales and marketing: An electronic signature allows businesses to close deals faster while saving valuable time spent on admin tasks.
- Hiring and onboarding: Without the paper trail slowing things down, candidates and employees can fill out and sign and electronic forms and job contracts in seconds.
- Legal circumstances: Legal processes can move along swiftly with e-signature software. Share NDAs and liability forms which recipients can fill out and sign in minutes.
Freelancers, in particular, can benefit from the security and peace of mind that e-signed documents can provide. When the freelancer and the client have placed an electronic signature on a document it becomes legally binding. This means that if the client doesn't uphold their end of the deal, there can be legal consequences. Hell hath no fury like an unpaid freelancer.
You're wondering how a tap of a button can have the same validity as handwritten consent, right? Lucky for you, this is exactly the question we'll answer in the next section.
Which states allow electronic signatures?
ESIGN Act legislation ensures that electronic signatures are legally binding in every state where federal law applies. Outside of the US, they're legally binding in 30 European countries and most other countries around the world.
Most American states where federal law does not apply have adopted the Uniform Electronic Transactions Act (UETA), which establishes a legal framework for the use of the electronic signature, and states like Illinois and New York have installed their own laws to attest to their validity.
In New York State, for instance, the Electronic Signatures and Records Act (ESRA act) guarantees electronic signature validity state-wide. This means that all businesses are bound by this regulation and must accept e-signatures.
There are some key factors that affect the legal effect of an electronic signature. Let's take a closer look at what requirements need to be accounted for to ensure an electronic signature is legally binding.
1. Signatory's identity is verifiable.
The identity of the person signing the document must be verifiable. There are numerous ways to verify the identity of the signer using digital technology, including via SMS, email, or electronic ID. Obviously, the stricter the identity control, the better the security.
2. There must be intent and consent to do business electronically.
The next requirement is that the parameters of the transaction as hand must be communicated clearly, and the signer must have unequivocally intended to sign the document electronically. In other words, they must know exactly what they're signing.
The content of the contract is particularly important at this stage, as what is legally binding is exactly what was stated in the signed version. If a contract is altered before it is signed, the new wording is now a new contract offer. What's more, if there is more than one person involved in signing the document it's only signed and lawfully binding once all parties have signed.
You'll need evidence that the electronic signature was intentionally submitted, along with proof of consent from all parties to do business electronically.
If you're using an online electronic form or contract builder, you can secure this information with built-in electronic records. A consent clause that requires the signatory to "click to accept" before they officially e-sign a document.
3. Document integrity and records.
This one relates to what you do once the document has been electronically signed. In the same way that invoices, tax returns, and other important documents must be kept intact - so too must any electronically signed document. A record of the document must be kept by both parties, and it mustn't be tampered with. Any slight change in the document can affect its integrity and result in it losing its legally binding status if upheld in a court of law.
How can you verify an e-signature?
The best way to verify an e-signature is to ensure you have adopted the use of software like the Qualified Signature Creation Device. This allows the document to be encrypted and safe for use even after signing.
Another way to make sure an e-signature is verified is by checking that they pass federal law and regulation such as the Uniform Electronic Transactions Act (UETA) and the Electronic Signatures in Global and National Commerce Act (ESIGN Act)
As it's easy to forget things online, auto-reminders are vital for e-signatures. If you're a freelancer, Bonsai software can help you stay on top of things with client auto-reminders. So, if they're not acting as quickly as they should, we'll give them a nudge in the right direction and flick you a notification when they've completed the document.
What are the benefits of e-signatures?
Are e-signatures the right alternative for your business? Let's examine some of the benefits that signing documents electronically can have for your business or organization.
Time is money in today's fast-paced world.
Electronically signed documents can save time lost during the process of coordinating signatures and prevent contract delays. With electronic signatures, it takes an average of 37 minutes to obtain signed documents, as opposed to traditional methods which take on average 5 days. Imagine all the things you could do with that extra 4 days, 23 hours, and 23 minutes!
Negotiations, approving updates, making amendments - all of this takes up valuable time. Moreover, sending a paper contract via postal mail or fax can take days, even weeks, depending on where they're being sent. This, combined with the back and forth interactions prior to the contract finalization can add a substantial amount of time to the approval timeline.
Organizations that have successfully migrated to electronic signatures have reported between 55%–78.62% in total cost savings. Creating and signing an electronic document saves money on paper, shipping, packaging materials, and administration costs.
Although these costs might not seem significant at first considering how quickly business transactions add up - shifting towards electronic signatures can yield serious cost savings.
With electronic signatures, important documents and contracts can be signed regardless of geographic location. As long as both parties have an internet connection, they can access, review, and sign contracts on the go.
With freelance and remote work on the rise in today's globalized business world, location flexibility is more important than ever. Bonsai's freelance contract software enables freelancers to create professional contracts with a selection of contract templates, sign with an e-signature, and send them to clients.
Increased efficiency and productivity
In addition to the administration hours, turnover time, and material costs saved when documents are signed electronically, using e-signature software can boost the efficiency and productivity of both parties involved.
A study found that adopting the use of electronic signatures led to an 85% improvement in productivity. By taking away the time spent on copying, faxing, organizing, and transporting documents, employees will have more time to spend on more valuable tasks that require their expertise.
Streamlining contact management can contribute to higher workplace efficiency, reduce time spent on back-end tasks, and improve employee morale - all leading to a more productive workplace.
Lower Risk of Human Error
Take paper documents, administrative tasks, and the sending back and forth of documents out of the equation and e-signatures offer a much lower risk of human error. In fact, among financial institutions, signing documents with an electronic signature reduces the likelihood of scanning errors by 92% and prevents files from disappearing by 66%. An e-signed document or contract is saved in file format, so they can't mysteriously disappear in the office or get accidentally mistaken for trash.
Alongside the risk of human error is the added security an electronic signature provides when executed with contract management software. With robust user verification, contract management software enables businesses and freelancers to ensure documents are only shared with those they need to be shared with.