Step 4 of the Agreement Lifecycle: Digital Signature or Electronic Signature

By Caroline Hoy   Jun 25, 2021
Online contract signing is a common way to complete the agreement drafting process. Learn how a contract is usually signed in this article.

Does a contract have to have a digital signature or electronic signature? Is a legal agreement valid if it’s signed on a napkin?  

In business and personally, knowing how a contract is usually signed is, as they say, “good adulting.” No matter how dry it might seem to understand digital signatures, it’s important to know the basics—before you sign.

Electronic Signatures require some basic knowledge, such as the other steps in the contract lifecycle, who the stakeholders are, the basic parts of a contract, and more.

Basics of Signing Agreements 

You might take it for granted that signatures make contracts legal. Though it’s almost universally recognized today, for thousands of years, people bound agreements in varied ways. From handshakes, to verbal agreements, people accepted and enforced terms. Electronic signatures, or eSignature, is now the most common way to sign. 

Collecting digital signatures is the step in the contract process that includes signatures from all parties. The actual act of contract signing by all parties makes the terms legal. Once a contract is legal, it is enforceable in a court, explains upcounsel

Signatures came from English contract law hundreds of years ago. We follow that code for business contracts today, with written and signed contracts. Just a few generations ago, that could be done with either an “X” or a signature.

Nowadays, though, most people are literate and able to sign their name. But an “X” can still work as a legally acceptable acknowledgement of terms. Mobile phone plans or anywhere you find terms of use these. 

Where is Electronic Signature in the Contract Management Process?

From a business perspective — and best practice — a digital signature completes the contract. However, It’s not the final step in the contract lifecycle.

Electronic signatures are the final stage in finalizing the contract, but not the last stage of the contract lifecycle.

Signing happens after negotiating and redlining contracts. Then, following signing, managing contracts in a secured storage space, tracking terms, renewals, and deadlines, comes next.

Here are the stages of the Contract Lifecycle:

  1. Drafting a Contract
  2. Internal Approval of the Agreement
  3. Contract Negotiation
  4. Signing the Contract (this article)
  5. Securely Storing the Agreement
  6. Tracking Contracts and Documents

According to FindLaw, contract signing requires these three, essential components: 

  1. A mark that shows your intent to agree. 
  2. A mark that can’t be erased or smudged.
  3. A valid mark – one that’s made by, or authorized by, you. 

How a contract is usually signed depends a bit on the type of contract and who is signing, but digital signature is often best.

How a Contract is Usually Signed

So can a contract be signed on a napkin? 

In the early 2000’s, a young soccer player, Lionel Messi, signed to a major soccer league just this way, relays FindLaw. Ultimately, he went on to sign a written contract. 

But for a contract to be legal, it technically only need three components: 

  1. An offer
  2. Acceptance
  3. Consideration

If the lunch-table serviette had these three components, the multi-million soccer contract could have legally stood up in court. 

From the offer, to acceptance, and consideration, every party who is responsible for upholding the terms should be involved. Naturally, these parties are also responsible for signing. 

How Do Electronic Signatures Work? 

It goes without saying (we hope!) that an offer should never include illegal goods, services, or interfere in basic protections. 

To that end, every party is responsible for reading — and understanding — the terms of a contract. You and your business are still liable if you’ve signed a contract for which you haven’t understood the details.

On the other hand, these terms need to be legal. For example, a rental agreement needs to adhere to local, county, and or state laws to be enforceable, advises FindLaw.

Again, every party needs to be able to do the following: 

  • Fully read and understand your contract.
  • Every party must sign the contract.
  • Each party must have a copy of the signed contract.

Manual Signing vs Digital Signature

There are two ways contracts are signed: By hand or by electronic signatures. 

For some types of legal documents, such as wills, handwritten signatures are necessary. It’s because most paper signatures do require in-person witnesses. 

Electronic signatures or digital signatures are authentic signatures that are legally binding. These are valid for most legal contracts, and are signatures that don’t require notarization.  

Electronic Signatures are Becoming Ubiquitous

In just the last three years, a multitude of cases have opened the legal door to broaden electronic signature usage. LawyerMonthly says that electronic signatures could replace handwritten ones. These cases have opened the way for remote witnesses. Electronic signatures are becoming a viable solution for family law, real estate deals, and some health contracts. 

There really is no downside to adopting electronic signatures, as regulations catch up to legally meet these.

Electronic Signatures: 

  • Decrease time-to-signature
  • Are environmentally friendlier
  • Offer more security
  • Make completion faster
  • Are trackable
  • Reduce errors

Still, there are some tips and best practices to consider. Let’s dig into ways to be successful with electronic signatures.

Some tips for success with digital signatures include making sure the document is complete and that you have good electronic signature tools.

Tips for Making Electronic Signatures Smoother

Use an online platform – Digital signatures are the best way to make the process faster and smoother. 

With a contract management platform, you’re able to collaborate, and negotiate directly on the platform. It’s the most efficient way to track that all parts of an agreement are in place and legally viable. Any party can track and view the offer, acceptance, and the consideration of terms.

Ensure all parties can sign – Every party who signs should be legally capable and has the right to do so. 

Anticipate storage needs – Contract storage should be easy-to-access, but also highly secure. An online contract platform can provide secure storage, and tools to track contract terms and deadlines. 

A good online contract signing tool should not only provide eSignature, but also provide storage and tracking.

Helpful Online Contract Tools 

Today, digital contract software provides the best tools for every stage of the contract process. It’s how we usually sign contracts.

Avoid Common Software Shortfalls:  

  • A limit on the amount of digital signatures you can execute. 
  • Separate charges for each tool or feature.
  • Limited viewer capability. 
  • A lack of access to your contracts if there’s payment issues.
  • No reporting capabilities.
  • Unnecessary IT-heavy support.
  • Confusing e signature tool. 

Instead, look for a solution that offers everything you need. 

Digital Signature Advantages with Concord: 

  • Everything is in one place for easy collaboration.
  • Easy search: Search PDFs, and Docs.
  • Unlimited eSignatures
  • Free document creation and uploads, no limits
  • As many viewers as needed to track a document
  • Priced lower than others

The next few documents you sign will likely be with an electronic signature. Digital contracts are so much easier when everything is within a contract management platform. There’s no need to print, sign, and scan—ever again. 

This is the conclusion to our article about how contracts are usually signed, as well as a free download.

Conclusion & Free Download

You might still work-out a personal deal on that napkin — for a small good or service. But for your business agreements, a contract management platform is the best deal. 

Concord Contract Management Software is regularly one of the most competitive in pricing on the market. Check out how you can expedite your processes with one of Concord’s free, live webinars.

Want some more information on the agreement process? Here is a free download, Best Practices for Contract Efficiency. Get your copy today!

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