Electronic Contracts: How To Create Legally Binding Documents Online

The year is 2023 and many people are still not sure whether electronic contracts are legal without a paper copy to back them up.  

On the other hand, about 65% of B2B companies operate in a totally paperless environment. 

This means that a lot of deals, contracts, proposals, and agreements get signed electronically. And not without a reason. 

Research shows that companies that adopt paper-free solutions reduce document handling expenses by 85%, while also saving 80% on shipping. 

Stick around and learn how you can save your business a lot of money by switching to electronic sales documents.

What is an electronic contract?

An electronic contract is an agreement that interested parties create, negotiate, and execute completely online without printing a single.

Electronic contracts not only eliminate expenses associated with pen-and-paper contracts but also accelerate workflows, saving a ton of time for both parties.

Are electronic contracts legally binding?

Yes, electronic contracts are legally binding. 

In 1999, the EU passed the 1999/93/EC directive that made electronic signatures legal and valid in all member states.

The following year, the U.S. Congress verified the Electronic Signatures in Global and National Commerce Act (ESIGN), which made electronically signed documents recognized and legal across the U.S. 

This law only confirmed the 1997 Uniform Electronic Transactions Act (UETA) that removed the barriers between electronic records and signatures and manually signed documents.  

According to UETA, clickwraps and other webpage click-through agreements are valid – just like contracts signed on paper. When clickwraps meet the legal requirements, users are notified of terms and conditions and give affirmative assent. In this case, courts can enforce electronic contracts. 

Other types of electronic contracts, such as browsewraps and sign-in wraps have low enforceability. These agreements usually don’t stand, as the court finds that users were not aware of what they agreed to. 

Sign-in wraps are often ruled unenforceable as the court finds that they use a “dual-purpose” button and fail to demonstrate that the user has agreed to the terms. 

How to make electronic contracts legally binding

Even though parties interact in a digital format, an electronic contract must meet some legal elements to be binding and enforceable:

• Offer: An offer from one party to the other to perform a certain service or pay for certain products. 

• Acceptance: An acceptance from the other party in which they agree to the terms of the offer.

• Promise: A promise to undertake the action that has been accepted, for example, to pay for certain products or services.

• Consideration: Something of value given by one party to the other in exchange for products or services. For example, $6,000 for a website overhaul.

• Capacity: The section that confirms that the signers understand the terms they’re agreeing to. 

• Legality: The transaction itself is legal.

Electronic contracts follow the same procedures as traditional contracts. They clearly outline each party’s responsibilities and propose the requirements for full compliance.

There’s an easier way…

Writing contracts is not an easy task. You need to keep the language simple, refer to each person correctly, spell out the details, specify payment obligations, agree on the way to resolve disputes, etc. 

Apart from an experienced team member, you’ll most certainly need a lawyer to help you handle the legal side of the documents. 

But do you need all that hassle?

Can you afford a lawyer every time you need to draft a contract?

There’s a better way. Here at Better Proposals, we have professionally-written contracts that you can use and modify to meet your specification. They all come with electronic signature and tracking, so you’re covered in case a third party decides to challenge the terms of the contract. 

It also works the other way around - if a client breaches the terms of your contract, you can use it to file your lawsuit. And if you're dealing with a large amount of contracts on a regular basis, you might want to implement legal contract automation.

Types of electronic contracts

Well-written online contracts combine the legal requirements of a traditional paper contract with the ease of digital signing and acceptance. The best type of electronic contract for your business depends on how you present agreements. These are the most common types of electronic contracts: 

• Browsewraps: Browsewrap agreements are mobile app or browser notices. They state that the user agrees to the terms and conditions of the agreement simply by using the app or website. Browsewraps usually don’t have a dedicated step where the user “assents'' to the agreement.

• Clickwraps: A clickwrap agreement requires a user to click “I accept” which binds them to the electronic contract. This shows that the user explicitly assents to the agreement. 

• Scrollwraps: Scrollwrap agreements are a step further from clickwrap agreements. Here the consumer has to scroll through the terms and conditions section before they click the clickwrap.  

• Sign-in wraps: Sign-in wrap agreements assume acceptance the moment a user signs in to use an online product or service. 

• Electronic signatures: These electronic contracts rely on an electronic signature as a way of authorizing the document. Users sometimes have options to scribble the signature by hand using a touchscreen, type their name or simply click a button. 

Every type of contract is appropriate for a different situation. 

For example, clickwraps are often used in mobile apps for high-volume, low-value agreements like terms and conditions, privacy policies, etc. 

Our digital contracts with an electronic signature make much more sense for high-value agreements, as they provide our customers with a higher degree of safety in case of legal disputes.

How to sign an electronic contract

Before you choose a signature method for your electronic contract, you should know the options you have. I’ve lined them up from the most time-consuming to the most efficient at the very bottom of the list. 

Pen and scan: Some businesses still accept online contracts that a client signs on paper, scans, and emails back. This isn’t an electronic contract, strictly speaking, but it’s still in use. While quicker than sending the documents through a courier, this way is highly inefficient by today’s standards. Best to avoid it.

Signature pads: In this case, the parties need to sign the contract using a digital signature pad and an electronic pen. Still, you need special equipment for this which reduces the effectiveness, especially in the remote work environment. Honestly, this method is not much more efficient than pen-and-paper contracts. 

Electronic signatures: These are the true digital signatures, but many of them still require special sign-in procedures and authentication in a 3rd party app.  

Clickwraps: This is the most popular option for many businesses. Users can simply click a button, check a box or hit “I agree”. With more advanced visions you can track who signed and what version of the contract they agreed to.

Embedded signing: Companies can embed legally binding contracts into different transaction points. Embedded signatures allow users to customize contract language and field, while the signer data is integrated into their internal systems. 

Better Proposal contract templates are protected with embedded digital signatures that allow you to track every transaction with the IP address, timestamp, and email address.

With these precautions, our users have peace of mind that they can always defend their digitally-signed contract against all kinds of legal challenges.

Benefits of electronic contracts

Pen-and-paper contracts require editing every time there’s even a slight change. Even if it’s the only party names and dates, this is an excruciating manual process where someone needs to go through every section and make sure the contract is up to date. 

In the case of electronic contracts, users use autofill information and customized templates to adjust the client information without having to manually alter the entire document. 

Easy to use

Electronic contracts are crazy easy to use. Users can modify them and access them from any device. Once signed, they can be analyzed for data and metrics so businesses can assess their contracting strategy.

Eliminate errors

Traditional contracts are prone to errors. When you consider the complexity of these documents, it’s easy to understand that teams can accidentally make mistakes when creating those drafts. 

With digital contracts in your management system, there’s little risk of human errors. Most of the important parts fill in automatically from your client database which means fewer typos or missing important details.

Environmentally-friendly

More than 50% of the world’s industrial logging goes into making paper. About 500,000 trees are needed to produce Sunday newspapers around the world. An average tree can absorb a ton of CO2 in its lifetime. Yet the same tree can only produce 17 reams of paper. By going paperless, businesses can significantly reduce their carbon footprint.

Saves time & money

Traditional contracts include emails going back and forth, and sometimes even a physical meeting to sign the documents and sort out the remaining details. Electronic contracts can be signed and agreed on online without the need to meet in person or wait for a courier. 

Electronic contracts also cost far less per transaction. This is especially evident in high-volume agreements, like Terms and Conditions changes. 

If you use a clickwrap agreement, all new terms automatically require acceptance from all relevant parties. It then records relevant information without the need for employee downtime. Not to mention the paper, ink, and other costs associated with paper-based contracts.

Wrapping up

Electronic contracts offer many advantages over pen-and-paper agreements. You can modify, manage, and store them more easily, but most importantly they allow you to speed up the whole process. 

Sign up for a free 14-day trial and check out our library of pre-written contracts. You’ll never want to draft another contract from scratch.