A Small Business Guide To Digital Contracts.
Digitization in the business world has been here all along. However, most businesses hadn’t started utilizing everything digitally available until recent years when they were forced to adopt a remote and hybrid workplace.
From remote team communications to managing workflows digitally, the business world has seen a significant digital upgrade and will continue to do so as technology continues to develop. One such area that has been significantly improved with technology is contract creation.
Whether it’s your first time learning about it or you’ve been hearing of it for a while but don’t fully understand it, this comprehensive guide takes an in-depth look at digital contracts. It will take a closer look at how it works, its different types, legality and benefits, and the best practices to implement.
Understanding Digital Contracts
At its core, a digital contract is simply a contract agreement created electronically to outline a business transaction between parties. The parties interact with one another in this digital format, instead of meeting face-to-face to discuss and sign the contract.
In general, digital contracts may be as simple as creating a digital contract and having other parties sign it. For companies dealing with numerous contracts, the use of a specialized digital contract management system can take the hassle out of your contract lifecycle process. These platforms allow for more organized storage of contracts and better collaboration on contracts.
The Different Types Of Digital Contracts
As businesses rely more on digital transactions, digital contracts have become more popular. There are several types of digital contracts that you may come across:
- Signature Agreements
Perhaps one of the most popular and more commonly known types of digital contracts, a signature contract is essentially the electronic version of traditional paper contracts. This requires the user to sign the contract online. Essentially, it uses an electronic signature that has the same legality as a handwritten signature.
- Clickwrap Agreements
Another common type of digital contract, clickwrap agreements is simple and easy to use. Typically, you see this when you sign up for a service or buy something online—for instance, clicking the ‘I Agree’ button on a website’s Terms of Service agreement.
- Shrinkwrap Contracts
This type of digital contract is often used when buying sealed physical goods. The agreement is included in the packaging and binds the customer to the terms and conditions once the product has been opened.
- Browsewrap Agreements
Almost similar to clickwrap agreements, browsewrap agreements are usually located somewhere on the website—often in a footer hyperlink—instead of showing the terms upfront. This type of electronic contract doesn’t require you to take any affirmative action to accept the terms.
- Email Agreements
This type of contract is formed via email communication between the parties. In general, by sending back an email with an ‘I agree’ in the body or subject line of the message, you agree to the terms and conditions provided.
- Web-Form Contracts
These are agreements in which the terms and conditions are provided on a web page. A user agrees to these conditions by filling out and submitting an attached form. Web-form contracts are typically used for membership agreements.
The Legality Of Digital Contracts
Some people may be skeptical about the use of digital contracts and whether or not it’s legal. Although it’s digital, an electronic contract is still a contract. Thanks to several laws including the Uniform Electronic Transactions Act (UETA) and Electronic Signatures in Global and National Commerce Act (E-Sign Act), digital contracts and electronic signatures are just as enforceable as traditional paper contracts and inked signatures.
That said, digital contracts are held to many of the same requirements and standards as traditional contracts. It should meet certain requirements of the law, best practices, and certain binding elements to be considered legal and enforceable. These elements include:
- Offer: This refers to an offer from one party to another to pay for some good or perform some service.
- Acceptance: The offer should be accepted by the other party along with the several terms outlined.
- Promise: This is a promise to do the offer and action that have been accepted—for instance, payment for certain goods or services.
- Consideration: This is something of value provided by one party to the other in exchange for services or goods.
- Capacity: This refers to whether or not the signers or parties understand the terms and conditions being accepted.
- Legality: The digital contract matter itself is legal.
Why Use A Digital Contract?
Electronic contracts are now widely used by various companies in various industries and are considered one of the best ways to establish business agreements. If you’re still wondering if you should use digital contracts for your small business, here are some wonderful benefits of digital contracts to finally convince you.
- It’s Time- And Revenue-Effective
When contracts and agreements move faster, it helps save time and the revenue from those deals can be received sooner. Since it is a less complicated contract process, you also get a higher completion rate, meaning more deals are done.
With a comprehensive digital contract solution that uses automation, you can reduce the number of manual steps in your contract process, eliminating room for delay and mistakes. By moving at a speed, you can accelerate the timeline for your initiatives, whether for revenue generation or product releases.
In short, digital contracts help reduce turnaround time so that your business spends less time waiting for these agreements and gets more value out of your critical business projects.
- It Improves Employee Productivity And Collaboration
It’s not enough to complete contracts faster–you also need to assess the content of these contracts and ensure that you’re creating improved documents.
For instance, manual data entry in a contract-making process wastes time and increases the risk of errors. And the employee may be copying-and-pasting customer information from a customer relationship management (CRM) into a contract which not only slows them down but also creates a range of problems.
However, by opting for a digital contract system, your employees can easily draft contracts with customized templates and allow for the easy creation of these documents. Most systems also integrate with other existing solutions to ensure faster and more efficient data collaboration. This leads to better accuracy and employee productivity.
What’s more, a digital contract allows your team to access contracts from anywhere and collaborate more easily on the same contract. Having a digital contract system allows you to route contracts and documents to the right people at the right time for a more seamless task flow. This ensures that everyone is held accountable for their responsibilities and duties.
- It Saves Costs
Businesses, especially startups and small businesses, are always looking for ways to control costs. And in terms of contracts, opting for a digital version can help save on expenses.
With an electronic agreement, you can save on costs that include paper, printing, and storage since everything is created, sent, and stored online. As mentioned before, most systems allow for the faster creation and completion of contracts, which saves time, consequently saving costs. Since employees don’t have to work hours in drafting, sending, and waiting for contracts, you free them to do more productive tasks that provide your business with more value.
- It Ensures Compliance
Regardless of what industry you’re in, all businesses have regulations to control commercial activities. In terms of digital contracts, businesses can create customized templates and standard contract sections, which can be used in various scenarios. This not only maximizes your legal team’s time but also minimizes room for errors, ensuring compliance.
In addition, digital contract software can ensure the safety and security of documents that protect client information while letting contractual parties efficiently sign and execute agreements, reducing risky activities.
- It Makes Doing Business Easy
There’s significant value in making contracts easy. Delivering a superior agreement experience is essential to improve business relationships with all external and internal parties.
Time-consuming manual agreements can reduce partner and customer satisfaction. It also shows that your business isn’t operating at a modern, digital speed.
As today’s consumers and vendors see streamlined contracts in some parts of their daily lives and operations, they expect business transactions and agreements to be fast and easy. To some degree, your employees may also have similar expectations.
Digital Contract Implementation: 5 Best Practices
If you’re ready to switch to a digital contract, here are some best practices and tips to get you started.
- Invest In The Right Tools
Opting for a digital contract requires you to invest in the right tools. This includes your digital contract management system and an electronic signature tool.
Always choose software that matches your business needs and requirements. Make sure to compare your options and the various features that each program offers. Check a provider’s reputation and client reviews to get better insights into a program’s overall function and features.
- Form A Contract Management Team
Choosing the right tools is only half the battle. You also need to form a reliable team that will be responsible for managing and overseeing the implementation and daily use of your new software solution. This team should have enough knowledge and experience in contract systems so they can monitor an efficient implementation.
- Train Employees
As with any new system implementation, you want to make sure that your employees can efficiently and properly use the contract system by offering proper training. This ensures that productivity is maintained when the system is in place and that compliance standards and business protocols are followed properly.
- Schedule Audits
Once implemented, your digital contract system will need routine audits to ensure compliance with various regulations and policies. These also help your support team flag risks and take preventive actions.
- Monitor Performance
As with security audits, you also want to monitor performance in workplace efficiency and productivity. This allows you to measure return on investment (ROI) while also finding flaws or potential improvements in the process.
As modern businesses continue to accelerate their digital transformations, understanding what a digital contract is and how to implement it in your daily workflow are critical to your business’s overall success in this increasingly digital world.
Quickly becoming key elements of most business transactions, digital contracts and electronic signatures can give your business the potential to streamline its processes, expand its reach, and form positive relationships with other businesses and suppliers across the world.
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