Say Hello to the Age of Electronic Signatures
By Daniel Garcia
The COVID-19 pandemic has caused many businesses to close, adapt, or permanently close up shop temporarily. In these troubling times, almost all business interaction has moved online, and companies, such as Salesforce, DocuSign, and other online tools have become essential to the operation of businesses. Yet, many brick and mortar businesses or mom and pop shops that either hadn't adapted to the electronic age before the pandemic or were hesitant to move away from paper contracts, order forms, and agreements have struggled to continue their business effectively. Some small business owners simply don't know if an electronic contract or agreement is legal or valid. Luckily, two Acts provide relief to paper-only businesses, the Electronic Signatures in Global and National Commerce Act (ESIGN) and the Uniform Electronic Transaction Act (UETA).
What are ESIGN and UETA?
Unbeknownst to many small business owners, electronic signatures have held the same weight as "wet" signatures (pen and paper signatures) since 2000 when Congress passed ESIGN into law. While there are some differences, ESIGN and UETA effectively accomplish the same goals. ESIGN is a federal law and operates on a national level while UETA, if adopted by the state, is a state law and operates on a state level. Currently, 48 states have adopted UETA. Washington is the most recent state to adopt UETA on March 18, 2020. Illinois and New York have not adopted UETA but have their own electronic signature laws in place.
ESIGN and UETA serve three primary purposes that give electronic signatures the same weight as wet signatures:
· A record or signature may not be denied legal effect or enforceability solely because it is in electronic form,
· If a law requires a record to be in writing, an electronic record satisfies the law; and
· If a law requires a signature, an electronic signature satisfies the law.
To put it simply, ESIGN and UETA effectively treat electronic contracts as if two parties signed a paper document with a pen. An electronic signature does not have to be an actual signature such as a name but rather can be any electronic sound, symbol, or process attached to or logically associated with a record and executed or adopted by a person with the intent to sign the record. Electronic signatures include clickwrap agreements, which many of your consumers have encountered where they click the "I agree" button. Those agreements will not be denied any legal effect because it was not signed in person. These signatures are carried out on an electronic record, which is a record created, generated, sent, communicated, received, or stored by electronic means. Thus, emails can be considered agreements and contracts. While UETA is meant to be applied uniformly, it is crucial to seek counsel familiar with your local laws. For example, Texas recently stated in a case that the email communication between the two parties was not sufficient to form a contract.
While ESIGN and UETA are broad and apply to most contracts, there are some limitations, and some contracts must be executed in a traditional paper and ink format. ESIGN specifically excludes product recall notices affecting health or safety; documents required by law to accompany the transportation of hazardous materials; and notices of default, repossession, foreclosure, or eviction. This list is not exhaustive, but you can read the full text of ESIGN and UETA to understand and acknowledge its limitations.
Why Is it important for my small business?
For many large corporations like Xfinity, Verizon, or other conglomerates, the transition to online servicing as a result of the pandemic was not as difficult as it was for many small business owners. Contracts, agreements, and services were accepted and formalized online years before the pandemic took full force. Many of your consumers, especially the younger generation, have completed transactions without ever speaking to a live person. Yet, brick and mortar and mom and pop shops met success by thriving on the opposite. The face-to-face interactions established trust, and many consumers went to physical locations for the experience and customer service. Whether it was because it is what they knew or because it was their niche, this is no longer possible. The recent surge of COVID-19 cases casts doubt as to when face-to-face business will resume. But, there is a silver lining; adapting to the current pandemic to continue business will not only be a short-term benefit but also create lasting value in the business operations once the pandemic subsides.
Small business owners must understand and begin to utilize electronic signatures in contracts, agreements, orders, and other various business purposes, such as hiring. Doing so will serve three essential purposes: adapt to the pandemic, benefit business operation post-pandemic, and be prepared for any future pandemics. These purposes are important for small business owners to enable them to continue to operate their business during a pandemic but also to take advantage of the current situation to prepare for the integrations of electronics in all aspects of a business.
Once the pandemic is over and there is a cure, all will not continue as normal. There will be a slow trend of business until society reaches a pre-pandemic marketplace. As such, electronic signatures will continue to work to allow small business owners to maximize their profit, reach consumers, and order supplies from vendors. Once there is a cure, electronic signatures will benefit small businesses, enabling them to accommodate those consumers or business prospects who don't want to be in person; in addition, it provides a contactless method to limit interaction even if they are on site. The last, but not insignificant point, is to prepare for a future pandemic. The previous major virus was the SARS virus ten years ago, and it is very likely in the future, there will be another virus to hit the nation. Implementing electronic signatures will allow small business owners to continue to operate and ease the transition to an entirely online business operation if a nationwide shut down occurs again.
Moving documents into the digital realm is not new and using electronic records in business will become the primary method of business transactions. Electronic formats are going to continue to expand; for example, many states are authorizing remote notary services. Congress is also working to pass an electronic and remote notarization Act to apply on a national level. You can read the developments here. The Small Business Administration is also expanding the type of signatures that they accept electronically for loans. To see the current trends in eSignatures across the nation and how they apply to your business, you can read this article.
How do electronic signatures improve my business?
Moving contracts, agreements, and order forms into a digital format will not only keep your business operating without meeting in person, but many benefits will live long after the pandemic has subsided. A few benefits include the following:
Using electronic signatures will increase your profit margin during and after the pandemic has subsided by reducing or eliminating operational costs, such as paper, ink, printers, postage, and physical on-site storage of paper contracts and agreements.
Using electronic signatures reduces the time needed to process a contract or agreement significantly. Using the postal service or other mail carriers consisted of several days to send the documents to another party, then another several to receive the signed version or requested alterations. Yet, electronic contract signatures are instantaneous, and parties can change and agree to those changes in mere minutes.
Reinvest the time and money saved
The additional time saved by eliminating the process of printing, sending, and waiting for the contract to be received, allows small business owners to reinvest that time and money to grow their business in other areas or save money, which is much needed during these troubling times.
Five things to know when implementing digital contracts
So, you want to start using electronic signatures in your business? I have outlined a few essential points that a small business owner should know when using electronic signatures in their business.
The parties must intend to sign the electronic document. The signer must understand what it is that their signature means. For example, if they believe their signature is just to confirm they received the document and did not intend to be bound by the contract, the intent will be lacking.
The parties to the contract must either expressly or implicitly agree to conduct business electronically. There are many ways to accomplish this; the most effective method is to have express language in the contract stating they consent to do business electronically or if they are using software to prompt the user to confirm their consent. It is vital to note ESIGN has a specific Consumer Consent Process for certain consumer transitions.
The party signing the contract must have the authority to enter into the contract and make agreements. There are various ways to confirm the authority, such as business cards, the individual's title, or the transacting company certifies that the individual can enter into agreements on their behalf.
It is imperative to authenticate the identity of the party intending to engage in a transaction; for example, a business card used to confirm the authority to enter into a contract could be fake. Small businesses should authenticate the identity at the beginning of the transaction and that this person continues to be the person participating in the transaction.
It is important to note that with any process, there are inherent risks involved. There are risks, such as false authentication, repudiation, compliance, admissibility, and others. Understanding the risks involved will help prepare you to act in the event these issues come to light. This article explains the risks mentioned above and examples of how they can come into play when using electronic signatures.
The points mentioned above are not exhaustive of what small business owners should consider when using electronic signatures in their business. You can read more about moving your business to a digital format and a more detailed explanation of the guidelines above, such as the consent requirement for certain consumer transactions, as well as others not mentioned here.
Electronic signatures still too much?
Does creating, storing, sending, and managing electronic contracts, agreements, and orders extend beyond your ability? The learning curve of adapting to using electronic signatures in your business can seem like learning a dead language. Yet, you are not alone, and some companies can help in managing the process entirely or making it easier to sign documents electronically.
Salesforce is one company that can help in all areas of your business, including electronic signatures, but also in managing sales contracts. This article shows five typical Salesforce electronic signature uses and how they can improve your business. If you're only seeking an electronic signature provider for your contracts, many companies specialize in that area, such as DocuSign. You can view this list of electronic signature providers for small business owners.
It is essential to take steps to utilize electronic signatures in your business because electronic documents will continue to rise and eventually become the primary method of business operation. Implementing the systems now will prepare any small business owner to fully transition to an online marketplace in case of another pandemic, increase their profit by reducing overhead, and have a place in the market of the future. These are troubling times, but take advantage of the current situation and become pandemic proof. It will ease not only your consumer's concerns for their health but also future business prospects, allowing your business to resume as normal. Good luck!
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