Digital contracts, e-contracts or electronic contracts have become an integral part of the modern business landscape, as they help enterprises streamline their contract management processes, enhance efficiency, and provide a secure and convenient way to formalise agreements. However, in the entire contract lifecycle management process, one of the most important steps is contract signing, as it legally binds all the parties to the contract. This article explores digital contracts and the characteristics, benefits, and challenges of contract signing.

What are Digital Contracts?

There has been a visible shift in how businesses conduct transactions, especially when it comes to a change from traditional paper-based transactions to digital transactions. The rise of the internet and globalisation have also paved the way for the development of digital operations in enterprises, including contract management.

Digital contracts are simply electronic contracts that exist in digital form, often taking the shape of PDFs or other electronic formats. Digital contracts leverage electronic signatures, which can range from simple typed names to more advanced cryptographic signatures, ensuring the authenticity and integrity of the agreement. The use of digital platforms and cloud-based services facilitates collaboration, document sharing, and real-time updates, enabling parties to negotiate and finalise contracts seamlessly.

The adoption of digital contracts has a myriad of benefits for enterprises as they eliminate the need for physical paperwork, reducing the time and resources spent on printing, mailing, and storage. Moreover, the automation of contract creation and management processes streamlines workflows, minimising errors and delays.

Security is another crucial aspect of digital contracts, as advanced encryption technologies and secure authentication mechanisms ensure the confidentiality and integrity of the contract content. Parties can access and sign contracts from anywhere in the world, reducing the constraints of physical presence and expediting the negotiation process. Additionally, digital contracts can be easily stored and retrieved, enhancing document management and reducing the risk of loss or damage.

While digital contracts offer numerous advantages, they also present challenges that must be addressed for widespread acceptance. One key concern is the contract signatures stage during the contract lifecycle. Without good enterprise contract management software, contract signing can be a challenge for a business that either operates remotely or has a digital presence in multiple countries.

What is Electronic Contract Signing?

E-signing or electronic contract signing refers to the process of using electronic signatures to indicate an individual's or party's agreement to the terms and conditions outlined in a contract. This method of signing documents eliminates the need for physical signatures on paper and allows for a more efficient and streamlined approach to contract execution. E-signatures have gained widespread acceptance in legal and business environments, and various countries have enacted laws to recognise the validity and enforceability of electronic signatures.

Generally, there are two types of contract signing:

1. Simple Electronic Signatures: These are basic electronic representations of a person's signature, often in the form of a scanned image, a typed name, or a stylised digital signature.
2. Advanced Electronic Signatures (AES): More secure than simple electronic signatures, AES involves additional authentication measures to ensure the identity of the signer. This can include biometric data, cryptographic techniques, or unique authentication codes.

Contract management platforms that offer electronic contract signing features often incorporate advanced security to protect the integrity and authenticity of such e-signatures. Encryption and secure transmission methods are commonly employed to safeguard the signed documents from unauthorised access or tampering.

However, to be legally binding, the parties involved must demonstrate clear consent and intent to be bound by the terms of the contract. Therefore, contract signing tools generally include features such as checkboxes, confirmation buttons, or multi-step processes to ensure that the signer understands and agrees to the document.

A good contract management system also provides detailed audit trails that record the entire contract signing process. This includes the information on who signed the document, when the signature was done, and any other actions taken during the signing process. These audit trails serve as a record of the transaction and can be valuable during contract breach disputes.

Contract Signing with an AI Contract Management System

Electronic contract signing has become an integral part of modern business practices, offering a secure, efficient, and legally recognised alternative to traditional paper-based signatures. The e-signing feature in a good contract lifecycle management software is an important feature that significantly enhances the efficiency and convenience of managing contracts throughout their lifecycle. This feature leverages electronic signatures to enable the secure and legally binding execution of contracts, reducing reliance on traditional paper-based signing processes. Here are some of the top offerings of the contract signing feature in a CLM:

Streamlined Contract Execution

 The primary purpose of the e-signing feature is to streamline the contract execution process. Instead of relying on physical signatures, which can be time-consuming and geographically restrictive, users can digitally sign contracts from any location with internet access. This expedites the signing process and accelerates the overall contract lifecycle.

Accessibility and Convenience

Electronic contract signing within an enterprise contract management system also increases accessibility and convenience for all the parties to a contract. They can easily sign documents remotely, eliminating the need for face-to-face meetings or mailing physical documents. This is particularly valuable in today's globalised business environment, where stakeholders may be dispersed across different regions.

Security and Compliance

 Security is a paramount concern when it comes to electronic signatures. An AI contract management tool with a contract signing feature prioritises the implementation of robust security measures such as encryption, multi-factor authentication, and secure storage to safeguard the integrity and authenticity of electronic signatures. Additionally, these systems are designed to comply with legal frameworks and industry regulations governing electronic signatures.

Audit Trails and Tracking

The e-signing feature in a CLM generates detailed audit trails that document the entire signing process. This includes information on when the document was accessed, who signed it, and any modifications made during the process. These audit trails serve as a comprehensive record, enhancing transparency and accountability.

Notification and Reminders

A good contract lifecycle management solution should include an electronic signature functionality with automated notification and reminder capabilities. This enables users to receive timely alerts regarding pending signatures, expirations, or other critical milestones in the contract lifecycle. These features are crucial in keeping stakeholders informed and up-to-date, allowing them to take prompt actions when required.

User Authentication

To ensure the authenticity and legality of electronic signatures, CLM systems adopt various user authentication measures. These measures may include the use of passwords, biometric verification, or other secure authentication methods to verify the identity of the signer. Password protection is a commonly used method that requires the signer to enter a unique and confidential code to verify their identity. Biometric verification, on the other hand, uses unique physical characteristics of the signer, such as fingerprints or facial recognition, to authenticate the signature. Furthermore, some CLM systems may use additional layers of security, such as multi-factor authentication, to enhance the validity of e-signatures and prevent unauthorised access.

Customisation and Flexibility

A good contract lifecycle management software provides customisation options for the e-signing process where users can configure workflows, define signing orders, and set up rules to match specific business requirements. With these customisation options, enterprises can seamlessly integrate the e-signing process into their daily operations. They can also ensure that the e-signing process aligns with their unique needs and the size of the team. This flexibility helps reduce turnaround time, minimise errors, and increase overall efficiency.

Conclusion

The implementation of a contract signing feature within a Contract Lifecycle Management (CLM) system is a game-changer for enterprises looking for a secure, efficient, and legally compliant way to execute contracts. With the growing adoption of digital transformation, integrating e-signatures into CLM systems is crucial to streamline contract workflows and improve the overall agility of the enterprise.