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It’s no secret that the world of work is moving increasingly online, and the legal department is no exception.

Research is made easier through eDiscovery tools, meetings with outside counsel are taking place via video conference, and, of course, contracts are becoming ever more digital.

But as businesses move out of traditional pen-and-paper agreements and into a life of digital contracts, a key concern surfaces:

How can we make sure that our digital contracts are just as legally binding and secure as before? Better yet, how can we improve?

This article is your guide to answering all your questions about digital contracts. Read on to learn more.

Also read: Choosing the Right Contract Negotiation Software for Your Team

What is a digital contract? 

A digital contract is simply an agreement created and stored online.

While traditional contracts were often created using computers before being printed and signed with a wet signature, digital contracts never leave the digital realm.

They are sent over to internal stakeholders and signing parties via email or contract lifecycle management platforms. This means that every single part of the contracting process is digital, from contract creation and redlining to execution and renewal.

Also read: Types Of Electronic Signatures And Which To Use

How do digital contracts differ from traditional paper contracts? 

While there is an obvious distinction between digital and traditional contracts (one is physical, the other is online), there are three important differences that digital agreements bring to the table.

Time

Drafting and approving a digital contract is, in most cases, much faster than under the traditional model.

That’s because no physical meetings are required, no delays due to printer malfunctions or ink shortages arise, and the sending of documents can take place instantly via eSignature platforms.

Contract redlining can take place in the same platform, as can signing and subsequent archiving.

Also read: Contract Redlining: Definition, Tools, & Benefits

Cost

It almost goes without saying that digital contracts are a whole lot cheaper. No longer do legal teams need to bear the costs of physically printed documents, including ink, paper, postage, and even the maintenance of printing machines.

“Although a CLM solution might seem costly in the early stages, companies should have it in place and build workflows within the tool to process contracts better. By doing so, they can keep legal costs low in the growth stages and close deals faster. Moreover, they will have clear visibility into the contract pipeline and use their legal resources to optimize workflows better for yielding maximum results.”

~ Igor Poroger, Director of Legal, EMEA, Vectra AI

How CLMs Empower Legal Teams in B2B SaaS Companies
 

Errors

While both digital and paper contracts are prone to human errors, there are two important benefits when it comes to the digital version of agreements:

The first is that digital contracting platforms provide tools like templates and clause libraries that are pre-approved by the legal team, meaning those responsible for creating contracts are more likely to get it right the first time.

The second is that a digital contract is much easier to correct, as a new agreement doesn’t need to be printed. You can literally update the agreement and resend it to all stakeholders in a matter of seconds.

Also download: Contract Tracking and Management Spreadsheet Template

4 ways to sign a digital contract 

Digital contracts, just like traditional pen-and-paper agreements, require legally binding signatures to be valid.

However, because digital contracts aren’t printed and approved with a wet signature—widely recognized as legally binding—we need to consider another way to sign a digital contract and make sure it's recognized in court.

There are four main ways this can be achieved:

Clickthrough

Clickthrough agreements (or Clickwrap agreements) are the simplest form of digital contract.

With this kind of signature, the signing party simply clicks a box that confirms they’ve read and agreed to the contract, such as when agreeing to the terms and conditions of a software install.

The other important factor here is that users can’t proceed to the next screen or use the product without having first agreed. With this in place, courts tend to find this legally binding.

Also read: Clickwrap Agreements: The Ultimate Guide

Sign-in wrap

Sign-in wrap is similar to Clickthrough, except users must create an account to approve the agreement and sign in to further use the product.

This, again, is best for software tools, as the sign-in wrap can serve both the function of a sign-in and of an agreement each time the customer wishes to access the platform.

Embedded contracts

Embedded contracts, sometimes called API signatures, are “embedded” into a webpage through an API.

This API gathers the signature (the user must actively type their name) and contains specific language next to the signature field so users know what they are agreeing to.

This is a less commonly used form of signature, being that it offers some of the convenience of clickwrap and some of the security of an electronic signature, but trades off a little of each.

Also read: Click-to-Sign: Comparing Clickwrap and eSignatures for Digital Agreements

Electronic signature 

Finally, we have the electronic signature.

An electronic signature often looks just like a wet signature, except it is done digitally.

This might be attached using a PDF editor tool like Preview or Adobe Acrobat, though it is more commonly appended using a digital signature platform or contract management system, as this offers enhanced security and embedded data that helps legal teams ensure contracts can hold up in court.

Also read: Are Electronic Signatures Legal?

6 benefits of using digital contracts 

Still not sure if moving from traditional pen-and-paper to digitized contracts is the right move for your organization?

Here are six reasons why you should change your mind:

1. Digital contracts are legally binding

In most scenarios, a good digital contract, protected and distributed using a contract lifecycle management platform, is just as legally binding as a traditional one.

For agreements like divorce proceedings and estates, some jurisdictions don’t recognize digital contracts and require a wet signature.

However, in the case of business documents like sales agreements and employment contracts, a digitally signed contract is completely legal and recognized in court.

So, if you’re considering going digital in the context of an organization, you can do so confidently.

Also read: Ensuring That Your Electronic Contracts are Legally Binding

2. Digital contracts are more secure

Compared to traditional pen-and-paper contracts, digital agreements are hands-down more secure.

First, a digital contract can be encrypted, provided the right software is used. This means that you can access an audit trail with data like who edited the contract and when, and which specific devices that agreement was signed on.

Then, you’ve got the added security of using a cloud storage solution.

Physically stored contracts are at risk of natural disasters and, of course, being viewed by those who shouldn’t have permission.

However, with role-based permission settings, contract repositories prevent access to agreements to the wrong eyes.

Also read: Contract Security: Hacks and tips for safeguarding your contracts

3. Digital contracts save time and money

We’ve already spoken about the fact that digital contracts are much more cost-effective due to the fact that no physical agreement needs to be printed.

However, they’re also a whole lot quicker to reproduce, send, and get signed.

This reduces contract and sales cycle times, translating to even more money saved. After all, time equals money.

Also read: Faster Contracts Make Shorter Sales Cycles: 1st-Hand Experiences At SpotDraft

4. Digital contract tools integrate with your software stack

While you can store copies of physically printed and signed agreements on your digital contract repository, they can never be live and agile documents integrated within your existing software systems.

Digital contracts, on the other hand, can connect directly to the rest of your software stack, provided you’re using the right tool.

“Leveraging a CLM has been key because it has reduced a lot of friction from handoffs between legal and business. Rather than going back and forth over email, Slack, Word, Zoom, DocuSign, and a whole tech stack, the CLM acts as a single source of truth.”

~ Jonathan Franz, Head of Legal, Crunchbase

Navigating Economic Turbulence and Thriving in Chaos

For instance, if your CLM platform is integrated correctly with your sales CRM, you can benefit from the following:

  • Alerts when a key stakeholder leaves a client’s organization and a new agreement must be created to remain valid.
  • Reminder notifications as sales contracts are due for renewal.
  • Automatically drawing customer data from the CRM into a contract during drafting.
Also read: 6 Must-Have CLM Integrations for Streamlined Workflow and Higher ROI

5. Digital contract management platforms provide reporting capabilities 

What insights do you have into contract management performance if you’re running on physical agreements?

Here’s what you need to be looking for:

  • How long, on average, does it take to go from drafting to signature?
  • How many customers renegotiate which points or terms of the agreement?
  • What percentage of customers renew contracts when they expire?

That’s a lot to take into account by sifting through stacks of physical documents. With a digital contract management platform, you can see all of this and more in a dedicated reporting suite. Some solutions even allow you to build a custom dashboard, and to schedule emailed reports direct to your inbox on a Monday morning.

Also read: 8 Top Contract Management Software Platforms

6. Digital contracts are mobile-friendly

In the modern world, being able to work on your mobile is critical. And thankfully, digital contracts can be executed just as well on a laptop as on a mobile.

More than mobile-friendly, digital contracts are modern work-friendly.

Some fully remote organizations don’t even have access to printers. Asking a potential employee or startup client to print, sign, and scan documents is not conducive to a smooth contracting experience.

But a digital contract can be accessed via a smartphone or tablet and signed and returned using the same device.

What are digital contracts used for? 

Sales agreements

One of the most common uses for digital contracts is for sales agreements.

With digitized agreements in place, sales team members can more rapidly get a signature on the dotted line and mark the sale as closed.

Plus, with pre-approved contract templates, you can speed up the agreement drafting process and potentially eliminate approval bottlenecks altogether.

Also read: From Paper to Pixels: Persuading Clients to Embrace E-Contract Signatures

Investment agreements

For companies that rely on funding from outside parties like angel investors and venture capitalists, digital contracts are a suitable solution.

This is especially true if your contract management platform can integrate with your cap table management solution. As new investment agreements are formed, the data they hold can be routed directly to the cap table platform for an update on company equity status.

Employer agreements 

Employment contracts are another classic use for digital contracts. There are two benefits here.

The first is one we’ve already discussed: Many applicants don’t have access to a printer these days, so allowing them to sign digitally helps speed up and smooth out the recruiting process.

The second is that digital contracts are always accessible to all parties who signed them (by legal necessity). This means that employees have improved access to their employment agreements and eliminates the possibility of misplacing a signed physical document. 

Lease agreements

In the case of brick-and-mortar shops and businesses with physical offices, digital contracts can also be used for lease agreements.

This is particularly helpful in shorter-term leases, where the terms and costs may change on a somewhat regular basis. Rather than having to meet in person with your agent to sign a contract amendment, they can simply send it over via a CLM, and you can fire it right back with an attached digital signature.

Partnership agreements

Lastly, we have partnership agreements. Like employment agreements, these contracts are best managed digitally for ongoing access and safe storage, especially if they include confidential information about business partnerships that you’d prefer not to be leaked.

Choosing a digital contracting platform 

Getting ready to onboard your first digital contract platform?

Here’s what to look out for.

Also read: The 11 Best Electronic Signature Software Platforms for 2023

Workflow automation

Workflow automation features help you do away with time-consuming manual tasks and speed up contract management processes.

For example, you can make a more efficient signing process by having the contract sent to all stakeholders automatically, with scheduled reminders if the document is still unsigned after a specific period of time.

“First, build out a workflow considering all the risks involved. Conduct training sessions with stakeholders and ensure they are comfortable using the CLM tool. The next step is to create a spec document with clause variations in different scenarios. Train the growth teams to refer to the spec document and make necessary changes to the contract, as needed."

~ Nadia Louis Hermez, Legal Ops Manager, Next Insurance, Inc.

Building a Robust Legal Ops Function 

Compliance with local regulations

Prioritize a contract tool that helps you stay compliant with local regulations. For example, if you’re doing business in India, you’ll want a tool that’s compliant with Aadhaar eSignatures.

Also read: Enabling Aadhar eSignatures on SpotDraft

Integrations

Make sure that whatever platform you choose offers native integrations with the software tools you’re already using.

For example, if you’re using Salesforce as your CRM and you want to create digital sales agreements, then a CLM tool with Salesforce integration should be at the top of your list.

Affordability

Pricing is always of concern when considering a new software tool.

Of particular importance here is choosing a platform that can scale with you. That is, it needs to be affordable not only now, but as you add more users or require more advanced features as your organization grows.

Document formats

One of the most important tasks when moving from traditional to digital contracts is to import all of your old legacy agreements and digitize them.

For this, you’ll want a contract management solution with support for multiple document formats, like Microsoft Word documents, PDFs, and JPGs.

Searchable repository

One of the biggest challenges with using physical documents is that it's tough to find what you’re looking for when you need it.

Sure, your filing system will help you locate a given contract based on the name of its signatories, but what if you want to search for specific clauses?

A good contract management solution offers a searchable repository, allowing you to surface key information using an AI-powered search function.

Customer support

Lastly, consider the fact that you’re likely to need help from the platform’s customer support team at some point.

Look for multiple support modalities (chat, phone, email), and ideally, find a platform that offers a dedicated support rep. Be sure to check out whether support comes at an additional cost.

And, if you’re new to digital contract management, you might want to find a supplier that offers a dedicated onboarding process to help you set yourself up for success.

Manage digital contracts and more with SpotDraft 

It’s no secret: Digital contracts are the future of contracting.

It’s not hard to understand why, either.

They’re convenient, cost-effective, faster, and more secure. Plus, they come with all the legal enforceability of their physical counterparts.

If you’ve decided it's time to do away with handwritten signatures and move into the world of digital agreements, you’re going to need a capable contract management tool.

SpotDraft is the leading contract lifecycle management platform for teams of all sizes.

With SpotDraft, legal teams can:

  1. Import and digitize physical legacy agreements,
  2. Build automated workflows to streamline operations,
  3. Create contract templates for non-legal team members to execute,
  4. Manage contract redlining and negotiations,
  5. Schedule renewal alerts, and more.

Sound like what you need? Schedule a demo with the SpotDraft team today.

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