What is an Electronic Signature? A Simple Explanation for Businesses

The way businesses operate is constantly changing, especially with more teams working from different places. This shift is clear when you look at how we handle documents. 

In fact, studies show that a large number of businesses are looking to invest more in digital document tools in the next few years. Yet, many companies still rely on old-fashioned paper processes. Think about the delays from printing, scanning, and mailing documents, not to mention the costs and storage challenges.

This is where electronic signatures come in. They offer a modern, efficient, and legally sound way to handle agreements. 

Electronic signatures, especially advanced ones, offer a modern, efficient, and legally sound answer to these challenges. They help businesses move faster and work smarter. This article will explain what electronic signatures are, how they work, and why they’re so beneficial for streamlining your business operations. We’ll also help you understand the different types available and guide you in choosing the right solution for your needs.

What is an Electronic Signature?

At its core, an electronic signature is simply your agreement or approval in a digital format. Instead of putting ink on paper, you’re using an electronic method to show your intent to sign a document. It’s legally tied to an electronic record, just like a traditional handwritten “wet” signature is tied to a paper document.

Think of it this way: when you sign a paper contract, your handwritten signature proves you saw and agreed to the terms. An electronic signature does the same thing, but in the digital world.

Examples of electronic signatures can be as simple as typing your name into a document, drawing your signature with a mouse or stylus, or even clicking an “I agree” button on a website. 

It’s important to know that an electronic signature is different from just a scanned image of your handwritten signature. A scanned image is just a picture, while a true electronic signature has underlying data that connects it securely to the document.

In many places around the world, electronic signatures are legally recognized and widely accepted. For instance, the ESIGN Act in the United States and the eIDAS regulation in the European Union provide legal frameworks that give electronic signatures the same legal standing as traditional signatures.

The main purpose of an electronic signature is threefold: 

• It helps to authenticate who signed the document
• It ensures the integrity of the document (meaning it hasn’t been changed after signing)
• And it provides non-repudiation, which means the signer can’t easily deny they signed it later.

The Difference Between Electronic and Online Signatures

Electronic signatures and online signatures. They sound pretty similar, right? But there’s actually a big difference between the two.

Electronic signatures are the broader category. They include any type of signature that’s created electronically, whether it’s a typed name, a digital drawing, or a secure signature created through a platform like FillFaster.

Online signatures, on the other hand, are a specific type of electronic signature. They’re signatures that are created and applied entirely online, usually through a web-based platform.

📖 Related article: E-Signature vs Digital Signature: What’s the Difference and Why It Matters

How Do Electronic Signatures Work?

While an electronic signature might seem like a simple click or a typed name, there’s a secure process happening behind the scenes to make it valid and reliable. It’s designed to ensure the signature is authentic, the document hasn’t been tampered with, and you can prove who signed what, and when.

Behind the Scenes

When you apply an electronic signature, several technical steps occur to secure the document and verify the signer’s identity:

• Digital Certificates and PKI: Many electronic signature systems use what’s called Public Key Infrastructure (PKI). Think of PKI as a highly secure digital ID system. It uses digital certificates, which are like electronic passports, to uniquely link your signature to your identity.
• Encryption and Cryptographic Hashing: When you sign a document electronically, the system often creates a unique digital fingerprint of that document. This is called a cryptographic hash. This hash is then encrypted along with your signature. If even a single character in the document is changed after signing, that digital fingerprint will change, making it immediately clear that the document has been altered. This ensures the document’s integrity.
• Timestamping: Electronic signatures often include a secure timestamp. This stamp records the exact date and time the document was signed. This provides crucial proof of when the transaction occurred.

User Experience

From your perspective, applying an electronic signature is usually very straightforward:

1. Uploading and Preparing: You upload the document you need signed to an electronic signature platform.
2. Placing the Signature: You or the sender places “signature fields” where people need to sign.
3. Applying the Signature: The signer opens the document, often after verifying their identity (which could be through an email link, a password, or a code sent to their phone). Then, they might type their name, draw it with a mouse or finger, or select a pre-saved signature style.
4. Verification: Once signed, the document can be sent back to the sender. Recipients can then verify the signature within the platform, confirming its validity and that the document remains unchanged.

Audit Trails

One of the most powerful features of electronic signatures is the audit trail. This is a detailed record of every action taken on the document, providing strong legal evidence. An audit trail typically captures information like:

• The signer’s IP address
• The exact date and time of signing
• The device used
• A unique identifier for the signature event
• The email address used
• Any authentication methods used

This comprehensive audit trail securely links your signature to the document. If any changes are made to the document after it’s signed, the system will detect them, ensuring the signature’s integrity and providing undeniable proof in case of a dispute.

Types of Electronic Signatures

Not all electronic signatures offer the same level of security or legal weight. Understanding the different types helps you choose the right solution for your business needs, especially when our title emphasizes “advanced” electronic signatures. 

Generally, electronic signatures can be categorized into three main types, each with increasing levels of security and legal enforceability.

Simple Electronic Signatures (SES)

A Simple Electronic Signature (SES) is the most basic form of electronic consent. It offers minimal security and is typically used for low-risk situations where formal proof of identity isn’t critical.

An SES is any electronic data that is logically associated with other electronic data and that is used by the signatory to sign. It’s about basic intent and agreement.

• Examples: Ticking an “I agree” checkbox on a website, typing your name at the end of an email, or clicking an “Accept” button for software terms and conditions.
• Use Cases: These are suitable for internal acknowledgments, low-value confirmations, or general consent where the risk of dispute is very low.

Advanced Electronic Signatures (AES)

An Advanced Electronic Signature (AES) offers a significantly higher level of security and reliability than a simple electronic signature. It’s designed to provide stronger assurance of the signer’s identity and the integrity of the document.

To be considered an AES, an electronic signature must meet specific criteria:

• It must be uniquely linked to the signatory.
• It must be capable of identifying the signatory.
• It must be created using data that the signatory can use under their sole control.
• It must be linked to the data signed in such a way that any subsequent change in the data is detectable.

AES often uses Public Key Infrastructure (PKI) and multi-factor authentication (like sending a code to your phone in addition to a password) to verify identity. 

Due to these added security features, AES carries more legal weight and is suitable for most contracts and formal agreements across many jurisdictions.

• Use Cases: Most business contracts, sales agreements, HR documents, and other formal agreements where you need a reliable way to prove who signed and that the document hasn’t been altered.

Qualified Electronic Signatures (QES)

A Qualified Electronic Signature (QES) is the most secure and legally robust type of electronic signature. In specific regions, like the European Union under the eIDAS regulation, a QES holds the highest legal equivalence to a handwritten signature.

A QES is an Advanced Electronic Signature (AES) that is created by a “qualified electronic signature creation device” and is based on a “qualified certificate” issued by a “trusted service provider” (TSP) that is supervised by a national authority. This means the identity verification process is very strict, often involving in-person checks.

In many jurisdictions, especially within the EU, a QES has the exact same legal value as a handwritten signature in a court of law. This makes it ideal for situations requiring the highest level of non-repudiation.

• Use Cases: Highly regulated industries often use QES for very high-value transactions, government filings, medical prescriptions, and other sensitive documents where the legal validity needs to be indisputable.

Benefits of Using Advanced Electronic Signatures for Your Business

So why the shift from traditional wet ink signatures to electronic ones? It’s simple – electronic signatures offer a host of benefits that traditional methods simply can’t match.

Enhanced Efficiency and Speed

One of the most immediate benefits you’ll notice is a dramatic increase in how quickly you can get things done.

• Faster turnaround times: Contracts, agreements, and onboarding documents can be signed and returned in minutes, not days. This speeds up sales cycles, employee hiring, and project starts.
• Reduced administrative burden: Say goodbye to manually preparing documents for signing, tracking physical copies, and filing them away. The system handles much of this for you.
• Elimination of manual steps: No more printing, scanning, faxing, or physically mailing documents. Everything happens digitally, saving valuable time and effort.

Significant Cost Savings

The move to digital can lead to substantial reductions in various business expenses.

• Reduced expenditure: You’ll spend less on paper, ink, toner, and printing equipment. Postage costs become a thing of the past.
• Lower operational costs: The time saved on manual processes translates directly into lower labor costs and more efficient use of your team’s time.
• Reduced storage expenses: No need for physical filing cabinets or off-site storage facilities for paper documents.

Superior Security and Auditability

Advanced electronic signatures are built with security at their core, often making them more secure than traditional paper signatures.

• Tamper-evident documents: The cryptographic technology used means that if a document is altered after being signed, the signature is invalidated, immediately alerting you to the change.
• Robust encryption: Sensitive information within the documents and signatures themselves is protected through strong encryption.
• Comprehensive audit trails: As we discussed, every action is logged, providing undeniable proof of who signed, when, and from where. This drastically reduces the risk of fraud and makes disputes much easier to resolve.
   

Improved Customer and Employee Experience

Modernizing your signing process also benefits the people you interact with most.

• Convenient and accessible: Signers can review and sign documents from any device, anywhere, at any time, without needing to print anything. This is incredibly user-friendly.
• Modernizes business image: Offering digital signing shows that your business is forward-thinking and tech-savvy.
• Increases completion rates: A simpler, faster signing process means fewer abandoned documents and quicker completion of important paperwork.

Environmental Responsibility

Choosing electronic signatures is also a step towards being a more environmentally friendly business.

• Contribution to a paperless office: Reducing paper consumption helps save trees and decreases waste.
• Reduced carbon footprint: Less printing, mailing, and physical transportation of documents means a lower environmental impact. Want to learn more about this? Check out our recent post on How Online Signing Reduces Your Carbon Footprint.
   

Global Reach and Accessibility

For businesses operating across different locations or serving international clients, e-signatures are invaluable.

• Enables remote signing: This is crucial for distributed teams, remote employees, and clients who are not physically present.
• Breaks down geographical barriers: You can conduct business and finalize agreements with anyone, anywhere in the world, instantly.

Stronger Compliance and Risk Mitigation

Advanced electronic signatures help businesses meet various legal and regulatory requirements.

• Easier adherence to regulations: Solutions are often built to comply with industry-specific laws (like HIPAA for healthcare or GDPR for data privacy) and regional legal frameworks.
• Clear, verifiable records: The detailed audit trails and secure linking of signatures to documents provide robust evidence, making your agreements more legally defensible should a dispute arise.

Use Cases Across Industries

Electronic signatures are incredibly versatile and are being adopted by businesses of all sizes and in nearly every industry. They effectively streamline document signing and management for a wide range of needs:

• Legal and Compliance: Used for various contracts, Non-Disclosure Agreements (NDAs), power of attorney, and formal legal declarations, ensuring security and auditability.
• Human Resources: Streamlines onboarding documents, employment contracts, policy acknowledgments, and benefits enrollment for employees.
• Sales and Marketing: Speeds up sales agreements, proposals, purchase orders, invoices, and new client onboarding, facilitating quicker deal closures.
• Real Estate: Simplifies lease agreements, purchase offers, and property management forms for agents and property managers. 
• Healthcare: Ensures secure handling of patient consent forms, HIPAA compliance documents, and medical records access.
• Financial Services: Ideal for loan applications, account opening forms, and investment agreements, where security and verifiable transactions are critical.
• Government and Public Sector: Improves efficiency for permitting, signing official documents, and citizen service applications.

📖 Further Reading: Documents You Can Sign Electronically (and Why You Should)

Choosing the Right Electronic Signature Solution

With various electronic signature providers available, choosing the right one for your business can feel overwhelming. The best solution will depend on your specific needs, the volume of documents you process, and your industry’s compliance requirements. Here are the key factors to consider when making your decision:

Key Considerations:

• Security Features and Trust Levels: Does the solution offer Advanced Electronic Signature (AES) or even Qualified Electronic Signature (QES) capabilities if you need them? What authentication methods does it support (e.g., email, SMS, knowledge-based authentication)? A higher level of security means greater assurance.
• Compliance Standards: It’s crucial that the solution meets the legal requirements relevant to your location and industry. Look for compliance with standards like the ESIGN Act (US), eIDAS (EU), HIPAA (healthcare), and GDPR (data privacy).
• Integration Capabilities: Can the electronic signature solution seamlessly connect with the software you already use? This includes your Customer Relationship Management (CRM) system, Enterprise Resource Planning (ERP), Human Resources Information System (HRIS), or document management platforms. Good integration saves time and prevents data silos.
• Ease of Use: An intuitive interface is vital for both signers and administrators. Is it easy for your clients or employees to sign documents? Is it mobile-friendly, allowing signing on smartphones and tablets? A clunky system can lead to frustration and lower adoption rates.
• Scalability and Volume: Consider your current and future signing needs. Can the platform handle a small number of documents or thousands per month? Will it grow with your business?
• Pricing Model: Understand the costs involved. Are there different tiers based on features, number of users, or volume of signatures? Look for transparent pricing without hidden fees.
• Customer Support and Training: What kind of support does the provider offer? Is it responsive and available when you need it? Do they offer training resources to help your team get started?
• Customization and Branding: Can you brand the signing experience with your company logo and colors? This helps maintain a professional and consistent image.
• Reporting and Analytics: Does the solution provide insights into document status, completion rates, and audit trails? Good reporting can help you identify bottlenecks and optimize your workflows.

Implementing Electronic Signatures in Your Business

Successfully bringing electronic signatures into your business involves more than just picking a software. It requires a thoughtful approach to ensure your team and partners adopt the new system smoothly and you get the most out of its benefits.

Here are the key steps to implement an electronic signature solution effectively:

• Assess Your Needs: Start by looking at your current processes. Which documents are signed most often? Where do you experience the most delays with traditional signatures? Identifying these key areas will help you pinpoint where electronic signatures will have the biggest impact and streamline your workflows.
• Choose the Right Provider: Based on the considerations we just discussed (security, compliance, integration, ease of use, etc.), select an electronic signature solution that aligns perfectly with your business goals and specific requirements. Don’t rush this step; the right fit makes all the difference.
• Pilot Program: Before rolling out the solution to your entire organization, start small. Implement it with a single department or a small group of users. Gather their feedback, identify any unexpected issues, and refine your processes based on their experiences. This helps iron out kinks before a wider launch.
• Develop a Rollout Strategy: Once your pilot is successful, plan a phased introduction for other departments or teams. This allows for a more controlled transition, giving each group time to adjust and get comfortable with the new system.
• Provide Comprehensive Training: This is crucial for successful adoption. Educate all users – both your employees and any external partners who will be signing documents – on how to use the new system effectively and securely. Offer workshops, clear guides, or even short video tutorials.
• Communicate Benefits: Clearly explain why your business is making this change. Highlight the advantages for everyone involved, such as faster processes, increased convenience, and improved security. This helps overcome any resistance to change and encourages widespread adoption.
• Monitor and Optimize: Implementation isn’t a one-time event. Regularly review how the electronic signature solution is being used. Are there any bottlenecks? Can certain workflows be further automated or improved? Continuously gather feedback and make adjustments to maximize efficiency and ensure ongoing success.

Embrace the Future of Digital Documentation

As we’ve discussed, an electronic signature represents a significant advancement over a handwritten mark. Especially with advanced electronic signatures, you gain powerful tools for secure and efficient digital documentation. These signatures are incredibly convenient; they link uniquely to the signer, can identify them, and are designed to detect any changes made to the document after it’s signed.

The shift to advanced electronic signatures offers clear advantages for your business. You can achieve substantial gains in efficiency, drastically cut down on costs, and enhance the security of your agreements. Plus, they improve the experience for both your customers and employees, contribute to environmental responsibility, and expand your global reach. Importantly, they provide strong legal validity and help you maintain compliance in an increasingly digital world.

Electronic signatures are now a fundamental component of modern digital transformation. By adopting this technology, your business can gain a strategic advantage, ensuring you are well-prepared for the future of doing business.

Ready to Transform Your Business?

Are you ready to stop waiting for signatures and start streamlining your operations? Discover how FillFaster’s advanced electronic signature solutions can help your business achieve greater efficiency, security, and compliance. 

Get started for free today or request a demo to see FillFaster in action.