E-signature rules around the world and what they mean for credit managers

International trade credit has come a long way from the merchant caravans and handwritten letters of early commerce. Rather than traveling extensively or waiting weeks for a response from global counterparts, today’s credit professionals are scheduling Zoom calls, sending emails and closing deals in minutes without ever leaving their office.  

Where merchants once relied on handshakes and promises, today’s credit professionals are operating within digitized global finance systems that can execute transactions across borders in seconds. With the widespread adoption of electronic contracts, cross-border transactions are easier than ever, enabling businesses to expand their reach abroad. 

Why it matters: Though efficient, electronic contracts are only as enforceable as the signature behind them. With e-signature rules varying significantly by country, a signature that is legally binding in one jurisdiction may be worthless in another—leaving credit professionals exposed to risk if they aren’t paying close attention. 

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. In the United States, for example, there are two primary statutes that govern the use of electronic signatures and render them legally valid and enforceable.  

At the state level, the Uniform Electronic Transactions Act (UETA) governs U.S. transactions with the exception of New York, which follows the Electronic Signatures and Records Act (ESRA), and Illinois until 2021, overruling its previous Electronic Commerce Security Act (ECSA).

On a federal level, the Electronic Signatures in Global and National Commerce Act (eSign Act) governs U.S. interstate transactions for more than one state. 

“These laws grant the same enforceability and treatment to electronically signed contracts as with any handwritten signature,” said Jason Torf, Esq., partner at Tucker Ellis LLP (Chicago, IL), during an NACM webinar, eSignatures and Electronic Contracts: Legal Requirements for Valid eSignatures and Making Sure Your Electronic Contracts Are Enforceable. “In other words, no contract can be voided or rendered unenforceable merely because it was signed electronically—so long as it meets the requirements of UETA or eSign Act.” 

For international accounts, the laws surrounding e-signatures will vary depending on the country the business operates in. In some regions it’s illegal to sign a contract electronically. With so many e-signature rules in place, credit professionals may find it difficult to maintain compliance and preserve customer relationships. Staying informed on their customers’ electronic signature laws can help prevent this from happening. 

Despite the variation, these laws typically fall under three universal categories: 

• Permissive (or minimalist) laws: allow for any electronic method showing intent to sign so long as both parties agree. They are commonly used in the United States, Canada, Australia and New Zealand.  
• Prescriptive laws: demand specific methods and technologies for the signature to be legally valid. They are only used in Brazil, India, Israel and Malaysia. 
• Two-tier laws: a combination of both minimalist and prescriptive laws, these laws accept all signatures but assign higher weight to specialized digital signatures. They’re typically used in European nations, China and South Korea.  

Failure to comply with these laws can invalidate the signature, leading to an inability to enforce the company’s security interests. To avoid this, companies can develop their own global corporate e-signature policies and amend contracts accordingly. They can, for example, make minimalist laws a governing law in their agreements. E-signature solutions, like Adobe Sign, provide a user-friendly platform for credit professionals to easily access, edit and navigate electronic contracts.  

The bottom line: International trade credit carries its own unique levels of risk. The key to minimizing risk in such a dynamic environment is a full understanding and adherence to a customer’s e-signature laws.