Electronic Contracts: Benefits, Challenges, And Best Practices

As businesses expand and change, pen-and-paper contracts may eventually lose their appeal. Working with clients, partners, suppliers, and employees through the traditional contracting process is very time-consuming and costly. Electronic contracts can assist parties in scaling more precisely and effectively in these situations. Keep reading to delve into the benefits, challenges, and best practices associated with electronic contracts.

What are Electronic Contracts?

An electronic contract is an online legal agreement binding two or more parties to terms and conditions. Unlike paper contracts, the parties draft, negotiate, and sign them electronically. Although digital, e-contracts must include essential elements such as offer, acceptance, consideration, capacity, legality, and mutual assent.

Businesses across industries use electronic contracts for all types of purposes. Parties can electronically create and sign contractual agreements for sales, employment, confidentiality, procurement, and so on. It can take various forms, including emails, scanned documents, or specialized software platforms. From software licensing to SOWs to privacy policies, all use e-contracts to formalize the contractual terms.

Types of Electronic Contracts

E-contracts vary from one another, depending on their purpose, jurisdiction, and industry. Their contract lifecycle may unfold over emails, web applications, or online forms. In some situations, parties may need to execute them using electronic signature systems, while in others, simply clicking "I Agree" would suffice. Here are some of the most popular electronic contracts:

Clickwrap Agreements

In these electronic contracts, parties agree and execute the terms and conditions by clicking a button or checking a box. It is a quick way for businesses to get consent from clients for online purchases, software downloads, copyright policies., and online registrations. These click-to-sign contracts are useful for low-value and high-volume business transactions.  

Browsewrap Agreements

Unlike clickwrap, browsewrap agreements don’t require users to take any action to communicate consent. Common on websites and mobile apps, these contracts state that users consent to the terms and conditions by using the application or site. The website typically displays the contractual terms or notices via hyperlinks; however, there’s no need for affirmative assent from the user. 

Scrollwrap Agreements

These e-contracts require users to scroll to the end of the legal agreement before accepting the terms. It is an advanced form of a clickwrap contract, and many websites, apps, and software companies utilize this technique to get authorization. It guarantees that users fully understand and acknowledge the terms and conditions they are agreeing to while using a website or service. 

Digital/Electronic Signatures

In these electronic contracts, parties use digital or electronic signatures for execution. They have the same legal standing and authenticity as wet signatures in most jurisdictions across the globe. It allows parties to formalize high-volume and high-risk contracts efficiently and securely. Adobe Sign, DocuSign, Sertifi, etc. enable businesses to sign all kinds of legal agreements remotely.

What are the benefits of Electronic Contracts?

Moving beyond paper contracts and traditional methods is a tough decision for most businesses. The cost of specialist solutions, legal ramifications, and the adoption of new technology all deter businesses from switching to electronic contracts. However, e-contracts offer a more effective means for parties to work together on the contracting process as the size and complexity of business transactions rise. 

1. Increased Efficiency

One of the most significant advantages of electronic contracts is the speed at which they can be created and executed. Traditional paper contracts often require mailing, printing, and physical signatures, which can lead to delays. E-contracts streamline this process, allowing parties to finalize agreements in a matter of minutes.

2. Cost Savings

By eliminating the need for paper, postage, and physical storage, electronic contracts can help businesses save on operational costs. Additionally, e-contracts reduce administrative time and resources, allowing teams to focus on more strategic tasks.

3. Enhanced Security

Electronic contracts offer advanced security features such as encryption and secure access controls. It offers version control and audit trails to keep track of contractual agreements throughout drafting, negotiation, execution, and post-contract management. These measures help protect sensitive information from unauthorized access, reducing the risk of fraud and data breaches.

4. Better Tracking and Management

With electronic contracts, tracking changes and managing versions becomes much more straightforward. Digital platforms often provide easy access to audit trails and alerts for contract renewals or expirations, ensuring that important dates are not overlooked. It also improves visibility and transparency in the contract lifecycle.

Are Electronic Contracts legally binding?

As we have covered, electronic contracts are legally binding as long as they contain all the necessary components. In the United States, the enforceability of electronic contracts is governed by the ESIGN Act, enacted in 2000. This law allows electronic signatures and records to have the same legal standing as traditional handwritten signatures and paper documents. However, the parties must agree to conduct transactions electronically. The electronic records accurately reflect the agreement for proof and dispute resolution.

However, the legal enforceability of browsewrap and sign-in agreements is often up for debate. They frequently violate the legal and ethical standards set forth by contract law and courts. For instance, sign-in contracts collect consent when users sign in for a product or service. Consequently, courts don’t consider it affirmative assent and are likely to make the contract unenforceable. If businesses uphold all the legal requirements and follow best practices, electronic contracts are a quick and efficient way to formalize commercial transactions. 

Dock 365 to manage Electronic Contracts

Electronic contracts are easier to manage than paper ones. However, depending on outdated methods of spreadsheets, word processors, and email to manage the contract lifecycle can make the business vulnerable to financial, operational, and legal risks. Everyday tools often result in disorganized storage, version control issues, and limited tracking capabilities, increasing the risk of errors, missed deadlines, and compliance breaches.

Specialized contract management software, such as Dock 365, addresses these challenges by offering a centralized platform for the contracting process. Built on Microsoft 365, Dock 365 automates every phase of the contract lifecycle management. It encourages easy implementation and adoption by allowing users to manage contracts within their SharePoint, Teams, Word, and Outlook platforms.

1. Centralized Document Repository

Dock 365 provides a centralized location to store all contracts and related documents, ensuring easy accessibility for authorized users. This eliminates the risk of misplaced files and ensures that stakeholders can quickly retrieve the most up-to-date versions. Centralized storage also enhances collaboration by enabling team members to work on contracts in a secure and organized environment.

2. Automated Alerts

The software can send automated reminders for critical contract milestones such as renewal dates, payment schedules, and compliance deadlines. This feature helps businesses avoid missed opportunities or penalties due to oversight. By automating alerts, organizations save time and reduce the burden of manual tracking.

3. Integration with Other Systems

Dock 365 integrates with CRM and ERP software, enabling seamless data sharing across platforms. This connectivity ensures that contract information aligns with broader business processes, such as billing or customer management. Integration reduces redundancy and improves decision-making by providing a unified view of organizational data.

4. Templates and Clause Libraries

The software offers pre-designed templates and clause libraries that simplify contract creation and ensure consistency. Users can customize templates to align with specific business needs or legal requirements. This feature reduces drafting time and minimizes the risk of errors or omissions in contract language.

Dock 365 improves collaboration across the board by allowing multiple stakeholders to review, comment on, and approve electronic contracts simultaneously. Workflow automation ensures that contracts move seamlessly through predefined stages, reducing bottlenecks. From AI tools to electronic signature solutions, Dock 365 helps teams complete contract cycles faster without compromising quality or accuracy. Book a demo today to see our all-in-one platform in action.