Electronic Contracts (E-Contracts): The What, Why and How

If you have visited a particular website for the first time today, or updated the software on your smartphone, you have seen (and agreed to!) an electronic contract. These types of agreements are everywhere in the modern world. 

When a business uses electronic contracts (e-contracts) the right way, they can help improve customer experience, streamline transactions and increase efficiency. But it’s important to understand the different ways these contracts can be created and implemented, in order to minimize risk and maximize the benefits.

Read on for everything a business leader needs to know about e-contracts.

What is an e-contract?

An electronic contract (e-contract) is simply a contract created using electronic means. Like physical contracts, e-contracts have three components:

1. Offer. The set of terms and conditions presented by the party that drafted the contract. 

2. Acceptance. Approval by all parties as indicated by electronically signing the contract.

3. Consideration. Following through on all terms and agreements in the contract.

These three components are the basis for all contracts, and it is likely that you sign some form of electronic contact every day. Everything from clicking “I agree” on an app’s terms of service to using e-signature to sign a purchase agreement when buying a house is considered signing an electronic contract. And although it may not feel as formal as signing a paper contract, e-contracts are just as legally binding and enforceable when properly administered.

Advantages of e-contracts

Upgrading from pen and paper to e-contracts comes with a host of benefits. But when it comes to how it benefits your business, there are three primary considerations that all add up to increased cost savings, quicker payments, and overall better business deals.

• Faster time to sign. E-contracts are as quick and easy to send as any other digital file. By taking advantage of workflow automation, a contract can be instantly sent to the next signer as soon as it is signed. No more sending paper contracts from room to room—or city to city. 

• Version control. E-contracts can be updated for all parties simultaneously in a central location, without having different drafts of the contract in multiple locations.

• Better security. Paper contracts are vulnerable to countless threats, like theft, sabotage, forgery and water damage. Best-in-class electronic contract providers offer a suite of digital and physical security measures to ensure the contracts stay safe from unauthorized access and tampering. 

How e-contracts are used

E-contracts can be used in just about any industry for nearly every type of contract. Here are a few of the most common types of contracts used across business functions and industries:

Types of electronic signatures for contracts

The most important part of an electronic contract is the ability to sign it electronically. There are four main types of electronic signature: 

Browsewrap 

Browsewrap is an agreement between a website and a user that is made by the user continuing to use the website. The “wrap” portion for this and other contracts comes from the term “shrinkwrap agreement,” where a software’s user agreement would be agreed to when the shrinkwrap was removed from the box.

On a website using a browsewrap agreement, the terms and conditions may be linked, but there is no requirement on the part of the user to click a button or check a box before they can proceed. The passive nature of this style of agreement means that browsewrap contracts can be very difficult to enforce. 

Clickwrap

Clickwrap is an agreement that requires the user to take the action of clicking a button or checking a box that indicates their agreement. It is most commonly used in situations where there is a high volume of standardized agreements, such as terms of service or privacy policies.

There are also two common variations of the clickwrap contract. The first is scrollwrap contracts, which function in the same way as a clickwrap contract with the addition of requiring the user to scroll to the bottom of the agreement before being allowed to agree. The other variation is the sign-in-wrap contract, which requires the user to sign into the website as part of the agreement process.

Read more about how to design clickwrap agreements. 

Electronic signatures

Docusign eSignature is a more robust platform for e-contracts that allows you to securely send and sign contracts while maintaining a complete audit trail.. This technology supports additional levels of authentication, such as SMS or email. It also provides options for collecting additional information from the signer, all within one platform. 

Digital signature

Digital signatures are a type of electronic signature used for e-contracts that require a higher degree of signer authentication. They use a globally accepted set of standards called Public Key Infrastructure (PKI) to create a tamper-proof “digital seal” that ties the signer to the document and provides a digital certificate to indicate that the signer has confirmed their identity. This level of security provides more through signer authentication but it can also take longer.

How to create and manage e-contracts

Contracts require more than signatures. They have to be generated, negotiated, signed, stored, and retrieved on demand. This collection of processes is known as contract lifecycle management (CLM). E-contracts allow organizations to take advantage of Docusign CLM, eSignature, and hundreds of integrations to enable faster contract generation, streamlined negotiation and signing processes, and centralized storage and retrieval. 

These process enhancements take companies from generation to payment faster than would ever be possible with an old pen-and-paper contract workflow. The result? A streamlined contracting process, improved efficiency, and boosted revenue.

Ready to see for yourself? Learn more about Docusign products for electronic contracts.