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What are electronic signatures and how do they work?

What are electronic signatures and how do they work?

Electronic signatures have transformed the way businesses deal with contracts and proposals.

Now it’s possible to approve documents in a fraction of the time it takes with traditional “wet” or handwritten signatures, which require numerous instances of printing, scanning, re-printing, and so on.

Whether you’re a solo freelancer or the head of an international company, electronic signatures should sit at the core of your document workflows. If you’re not already taking advantage of e-signatures, you’re almost certainly frittering away employee time and losing revenue.

In this post, we’re going to cover all the essential points about electronic signatures, including definitions, legalities, and practical steps for getting up and running with a paperless signing system.

Digital vs electronic signatures

People often conflate electronic signatures with digital signatures. But they’re not the same thing. In fact, they’re quite far apart in terms of the underlying technology. Understanding the differences is key to implementing effective electronic signature practices in your business.

Let’s take a quick look at each term:

Electronic signature

An electronic signature is simply a digital mark, where digital here means “done on a computer”. A basic example is adding an image — such as a photograph of a signature – to the bottom of a Microsoft Word document.

More advanced tools, like PandaDoc, enable recipients to create electronic signatures directly in the document (without the need to upload any image files). These tools also add an extra layer of security by automatically generating signing certificates, which record the date and time of approval. 

Digital signature

A digital signature is a highly-secure type of electronic signature that requires the recipient to have a digital ID in the form of a special certificate from an approved authority (called a certificate authority or CA). This certificate, which is stored on the recipient’s hard-drive, acts like a personal key and can be added to a document using specialist software.

Most businesses do not require digital signatures. And even those that do will usually only need to ask for them in a handful of circumstances. 

But you might be thinking, “Are electronic signatures legally secure and enforceable?” Well, let’s get to that. 

Are electronic signatures legally binding? 

So are electronic signatures legally binding?

The short answer is yes. Most countries have passed laws that guarantee the enforceability of electronic signatures. And if you’re reading this post in an English-speaking country, the strong likelihood is that you’re covered. 

Here’s a quick rundown of the legislation that covers electronic signatures:

  • Electronic Signatures in Global and National Commerce Act (ESIGN) – The ESIGN Act is a federal law passed on 30 June 2000 which ensures the validity of contracts approved electronically, particularly as they pertain to interstate trade. ESIGN stipulates that an electronic signature

“may not be denied legal effect, validity, or enforceability solely because it is in electronic form”.

  • Uniform Electronic Transactions Act (UETA) – Forty-seven states in the United States have adopted the UETA, which defines an electronic signature as

“an 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 Identification, Authentication and Trust Services (eIDAS) – eDIAS is an EU regulation that outlines standards for electronic signatures and contracts for all members of the European Single Market. 

Many other states, including India, Australia, New Zealand, China, and Japan, have passed laws. The United Nations has also published a set of guidelines to help countries without existing legislation. 

How do you add an electronic signature to a document? 

Which tools you select for adding electronic signatures to documents will depend on your business needs. 

If you simply want to e-sign documents from suppliers or add signature fields or signature lines for straightforward approval, then a free online tool will likely suffice. If, on the other hand, you need to manage and track documents that require signatures from multiple clients, then you should opt for more comprehensive contract lifecycle management (CLM) software. 

Here are four ways to add electronic signatures to documents:

  1. Use a free tool like PandaDoc eSign – With an online app like PandaDoc eSign, you can upload an unlimited number of PDFs and sign or send them for free.  
  2. Use Adobe Reader on Windows – Adobe Reader is the best tool for signing PDFs on desktop computers that run Windows. You can also use Adobe Acrobat if you have it.
  3. Use Preview on Mac – Preview is an app for Apple computers and allows users to upload PDF files and add electronic marks. 
  4. Use Mail or Adobe Fill & Sign on Android, iPhone and iPad – Adobe Fill & Sign is a straightforward, free app for signing documents on mobile devices. Mail is also a good option for iPhone users.

For more information and step-by-step instructions on all the methods described above, check out our in-depth article on the topic

Alternatively, have a look at our reviews of contract lifecycle management tools if you’re in need of a more comprehensive solution.

Where are electronic signatures stored?

If you’re using a generic tool like Adobe Reader, then documents with electronic signatures are stored on your hard drive. The software is only for adding a virtual mark to a contract, proposal, or invoice.

Dedicated contract management tools, and even some free tools like PandaDoc eSign, store PDF copies of signed documents in the cloud, along with certificates which display the time and date a signer gave their approval. 

Why not try a dedicated contract management solution?

With a comprehensive contract management tool, you can access a range of features, including embeddable payment options, recipient tracking, secure storage of approved PDF documents, and, of course, electronic signatures. 

A dedicated solution like PandaDoc, which was ranked as the best contract management app on the market by G2 in 2020, provides the easiest way to manage your contract workflows and easily add electronic signatures to all your documents.

G2_best_contract_management_software

You’re probably thinking, “Well you would say that!” And you’re right. But don’t take our word for it. Just give our e-signature tool a go. It’s completely free and we intend to keep it that way.

Eugene Zaremba

Eugene Zaremba Director of Demand Generation at PandaDoc

Eugene works at PandaDoc as the Director of Demand Generation. He is an avid fisherman, taking nearly 20 fishing trips every year.

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