Addressing the shift to electronic signatures

Business-to-business (B2B) credit has come a long way from 30 years ago. Back then, you either had to make a phone call, mail a letter or knock on someone’s door to conduct business. Nowadays, credit professionals can work virtually from anywhere, holding virtual meetings, emailing documents and sending messages instantaneously.

Why it matters: As more companies embrace digital methods, more credit professionals are adapting their practices accordingly. However, a recent shift from handwritten signatures to electronic signatures has brought enforceability to the forefront for many credit teams. Through proper adoption and understanding, credit teams can ensure contracts remain legally sound and enforceable.

When did it start?

The shift from handwritten, or wet, signatures to electronic signatures, or e-signatures, began in the 1990s. Instead of using paper, companies started incorporating digital technologies to automate workflows, improve efficiency and enhance security. With the advent of digital signatures, companies could use encryption standards and Public Key Infrastructure (PKI) technology to certify a document’s authenticity and prevent tampering.

After the enactment of the Uniform Electronic Transactions Act (UETA) in 1999, virtual documentation and signatures became legally enforceable in U.S. commerce and governmental transactions, consistent with other applicable laws. In 2000, the Electronic Signatures in Global and National Commerce Act (E-Sign Act), under the Uniform Commercial Code (UCC), was passed to ensure that contracts and signatures in interstate commerce were not denied legal effect solely because they were electronic.

E-signatures in B2B credit

This transition was, in many ways, a necessity for some credit departments. “For the 25 years before we went digital, I was always making copies, chasing signatures and hunting down lost contracts,” said Steve Winn, director of credit at Marek Brothers Systems LLC (Houston, TX). “Sometimes customers—or we—would miss a signature field or make changes after the contract was signed. Or they simply never returned our copy. Once we made the transition, we noticed that we stopped losing documents, missing signatures and receiving unauthorized modifications.”

This is especially helpful for companies that do not have the resources or capacity to print and mail documents. “We sell into the agricultural industry, which means many of our customers are operating in less accessible areas and may not have the greatest technology available,” said Brendon Misik, CCE, CICP, senior manager, Ag credit at Nutrien (Hoffman Estates, IL). “By using DocuSign, we can quickly send them the necessary forms that they can easily review and sign from their phone.”

For some credit managers, the only concern with using e-signatures is ensuring the validity of the signature. “It can be difficult to tell who signed a document because even a wet signature on paper can be falsified,” said Misik. “For instance, Adobe Acrobat allows users to create a signature stamp and initial stamp that can be placed anywhere on the document. The problem here is that without proper oversight, anyone can access the account, type a name, pick a font and sign it. This can increase the risk of forgery or perceived forgery.”

Sometimes customers may attempt to dispute contractual agreements, claiming that they did not sign the form and therefore are not subject to it. “I’ve noticed that customers will sign a personal guarantee when they are trying to get credit, but later regret signing it when they’re not doing so well,” said Wanda Borges, Esq., member at Borges & Associates, LLC (Syosset, NY). “They’ll claim that it wasn’t their signature or that they didn’t authorize the individual who used their signature stamp to sign it.”

Improving contract enforceability

The authentication of a signature is critical to a contract’s enforceability, as it verifies that the signing party is who they claim to be and that they willingly agree to the terms. “If credit professionals do not follow the practices of having either their own computers or a third-party platform properly set up, they risk not being able to have their agreements hold up in court,” Borges said. “That is what makes it so important that they have it done by a legitimate entity that will set all of this up correctly for them.”

The first step toward making contracts legally enforceable is to understand what constitutes a legitimate electronic signature. “A lot of people aren’t aware that a photocopied or scanned signature is not an e-signature—it is, in fact, a wet signature,” said Grahame Vincent, director of global credit and collections at The Trade Desk (Ventura, CA). “However, until you receive the original document with the wet signature, it is not enforceable. By authenticating your electronically signed document through a platform, such as DocuSign, you can ensure that you have all the necessary legal protections.”

For a court to uphold an electronic signature, credit professionals may consider the following factors:

• Attribution: Can the signature truly be attributed to the individual?
• Authentication: Can the participant’s actual identity—or the status of the authorized business representative—be confirmed at the beginning, throughout and at the end of the contract?
• Consent: Is there consent, either expressed or implied, to conduct business electronically?
• Intent: Is the intent to sign clear? Does it show no possibility of forgery?
• Security: Has the document been modified before or after the signature?
• Record retention: Do both parties have access to the maintained records? Do these records contain the associated signature and accurately reflect the information in the document?

To ensure enforceability, credit professionals can include a note in their contracts using specific legal language. For example: “This credit application/contract may be signed electronically and delivered to the creditor by electronic mail, including PDF, or any electronic signature that complies with the U.S. E-Sign Act of 2000, or other applicable law, or other transmission method. Any document so delivered shall be deemed to have been duly and validly delivered and be valid and effective for all purposes.”

Bottom line: Electronic signatures are quickly becoming a standard in business. Credit professionals who acknowledge this shift and remain proactive are better equipped to protect their interests and enforce their credit terms when it matters most.