Electronic contracts vs traditional contracts is a debate that has long been settled, yet some businesses still haven’t made the transition.
Compared to digital processes, creating, printing, and sending paper documents to clients or business partners can slow your workflow down significantly and cost you money in lost productivity — and that’s just the start.
For this reason, law practices and other companies are now increasingly turning to electronic agreements and electronic signatures as a smarter alternative to traditional hard-copy contracts.
Below, we explore some benefits of e-contracts and how they can help your business.
What is an electronic contract?
An electronic contract is a legally binding agreement in a digital format, typically exchanged through email or by using contract management software.
Just like with paper contracts, it has to contain the following legal elements to be enforceable:
- Identification. Which parties are involved?
- Offer. From one party to another to pay for goods or perform a service.
- Acceptance. Agreement to the terms of the offer.
- Consideration. The value given by one party to the other in exchange for goods or services.
- Legality and capacity. Assurance that the signers understand the contract’s terms.
Digital contracts have a few more requirements, spelled out in ESIGN and other related laws:
- Consent for e-signature. Usually, the act of digital signing is already a show of consent. However, some jurisdictions require a separate statement regarding this matter.
- Clear consequences. The signee must understand that their signature applies to the terms of contract.
- Alternatives. If a party doesn’t want to sign the contract electronically, they must be provided with a hard-copy version.
- Copy storage. All the parties need to have access to the stored copies of the agreement.
- Consent withdrawal. The parties must understand that they can break off the deal at any time before the signature is placed.
However, there are also more fundamental differences between a paper-based and a digital contract:
| Electronic | Physical |
|---|---|
| No printing expenses | Requires paper, toner, employee time |
| Easy to store and find | Takes lots of space to store and time to find |
| Accessible from anywhere | Physical presence required |
| Easy to modify | Takes more time to redo and print anew |
| Secure through encryption and cloud storage | Vulnerable to water, fire, and tampering |
| Low environmental impact | Creates waste and requires more electricity to make |
In practice, digital contracts allow for faster document turnaround, which improves sales.
Their secure nature mitigates many risks, and the ease of creating them leaves more time for your employees to spend on other tasks.
In addition, they are more environmentally friendly, which is not only ethical, but can serve as PR material as well.
What is a traditional contract?
Also known as a hard-copy contract, a traditional contract requires parties to meet in person to secure a legal agreement.
Sometimes, numerous meetings are required to agree on terms and conditions, make amendments, and finally meet again in person to sign the contract.
A traditional contract is written up according to what the parties want, and with every change, a new draft contract is created.
It can take a substantial amount of time to draft a paper contract, not to mention the operational costs involved with the cost of paper, re-printing, and ink.
Which documents must be paper-based?
There are some situations, for law firms and real estate agencies in particular, that require paper documentation, including:
- Lease or rental agreements
- Wills and trusts
- Mortgage agreements
- Promissory notes and notarized documents (although this is changing)
- International shipping contracts
- Contracts involving complex financial transactions
- Sale of real estate or personal property
- Family law documents (e.g. adoption and divorce papers)
- Foreclosure and eviction notices
- Notices for recalls of products that can be dangerous or harmful
- Documents that accompany hazardous materials.
In these cases you can create documents electronically, but have to print them out and sign them physically.
What are electronic contracts used for?
Depending on the department and industry, there are many use cases for electronic documents. Examples include:
|
Human resources OffersCompensation documentsExit letters |
Legal NDAsLegal briefsLegal memos |
|
Sales ContractsStatements of workInvoices |
Financial services P&L statementsIncome statementsCash flow statements |
|
Healthcare Patient consent formsMedical history questionnairesHIPAA forms |
Real estate Contract addendaDisclosuresBrokerage agreements |
Electronic contracts save time through digital processes
Hard-copy traditional contracts can kill an agreement with a potential client simply because it takes longer for them to receive, read, consider, and sign an enforceable contract.
Expect to save 6-10 days that would be spent waiting for the mail to go both ways.
E-contracts solve this issue by enabling your prospects to view and provide a digital signature for a proposal instantly on a computer, smartphone, or tablet.
Services such as PandaDoc serve as a good example of streamlining work through digitization. For example, greater efficiency through electronic agreements can make your law firm far more productive:
- Create contracts with a few clicks. Use a template, select premade clauses instead of typing them out, and your document will be done in minutes.
- Notarize quickly. All the necessary functionality is already included in the app.
- Access online. Work on the documents from any place and any device, as long as there is Internet connection.
- Keep information secret. Thanks to advanced encryption, access control, and secure storage, your documents will be kept secure.
“We have seen at least a 30% increase in close rate with PandaDoc. It has simplified our previous process by eliminating the need to print, scan and return.”
Rhett Marlow, President and CEO, LexHelper
With digital contracts, salespeople can create a sense of urgency, because prospects may check their email 15 times per day (or more) no matter where they are.
Another electronic contracting advantage is that you can draw up and submit the contract without manually entering or updating data in your proposal.
Furthermore, you can make any changes or updates quickly and send out the proposal or a link to a web page minutes after your initial meeting with the potential client.
You experience fewer errors with electronic contracts
Another crucial difference between electronic contracts and traditional contracts is that electronic versions are generally less prone to errors.
When you think about it, discrepancies in contracts generally occur in one of two ways:
1. Human error
The contract’s creator may have failed to proofread the contract or provide accurate data.
The recipient of the contract may have failed to read certain conditions within the document, and just blanketed the contract with signatures and initials to save time.
Malicious actors can also deliberately alter the contract in subtle ways, which could cause serious consequences, including lengthy and expensive litigation.
Here’s how electronic contracts counter that:
- They allow you and the recipient to view and adjust the terms of the contract digitally on a web page before agreeing to sign it.
- They foster a more collaborative process in which both parties may develop the contract together and agree to mutually beneficial business transactions.
- They let both you and the recipient enter client data once to populate multiple fields. This ensures that addresses, names, signatures, and initials are consistent across the entire contract.
Electronic contracts can reduce operational costs
Electronic contracts can eliminate the need for office supplies and equipment required to produce traditional contracts and business transactions, including:
- Paper
- Printing equipment
- Printing equipment maintenance and repairs
- Printing ink refills
- Electricity
- Postage
- Filing and storage
All of these costs instantly disappear when you switch to electronic contracts.
Not only do you save your company these costs, but you also save time and money for your clients or business partners who don’t have to or are unable to meet with you face-to-face.
Integrating electronic contracts with key workflows
If you use document workflow software like PandaDoc, you can easily integrate your electronic agreements and contracts into your wider processes.
For instance, PandaDoc integrates with CRMs like Salesforce, HubSpot, and Zoho.
That means all your critical client data and contracts will be in the same place.
What’s more, the PandaDoc API lets you build further integrations of your own.
Automated contract generation, signing, and more can be seamlessly combined in unique workflows.
Electronic contracts meet compliance and contract law regulations
Paper documents can be manipulated at any time.
This is why companies keep multiple copies or sign documents in the presence of a notary. Contract management software with electronic signing capabilities can mitigate this risk.
Even if both parties are allowed to collaborate and alter a document as it’s being developed, the best software still offers features such as:
- Limited access to signatures, initials, or requested information;
- Tracking and recording versions/history of a document;
- Authenticating a document and a sender/recipient using encryption;
- Detection features that alert one or both parties that someone has tampered with the document;
- Compliance options for ensuring that your contracts are both legal and legally binding.
More and more national and state governments are now accepting e-signatures and electronic contracts as legally-binding — especially in the wake of the pandemic.
Australia expanded the e-signing rights of companies and citizens, and so did UK and EU.
Even the IRS accepts electronic filing and signing.
Electronic contract software, too, keeps user information secure so that contracting parties can sign an enforceable contract without compromising their privacy.
You can feel confident that your electronic contract software meets all compliance standards and contract law.
Electronic contracts improve service provision
Electronic contracts allow you to provide documents for your clients faster.
They can sign documents from any location on any device without waiting for hard copies to come in the mail.
Software like PandaDoc offers an autofill feature, so your clients can sign or initial a document once, and it automatically fills out the rest of the document with those same signatures.
This time-saving feature allows clients or partners to sign an electronic contract from a phone, computer, tablet, or other device through electronic means.
It’s perfect for when someone wants to move forward with a contract and doesn’t have the patience for it to arrive in the mail.
In many cases, they may only have to click an “I agree” button or provide an e-signature to get things moving.
You can easily create and edit templates with electronic contracts
Do you produce high-volume contracts for a variety of clients or business partners?
If so, writing and rewriting contracts can become time-consuming.
Electronic contract software allows you to create or customize templates that you can use multiple times.
Do you need to change your online contract slightly for a different scenario? No problem.
You can easily work from an existing template and only change the sections that apply to any new criteria or situation.
The software will automatically save your template so that you can return to it. You can also save multiple versions of the template and use them at any time.
This saves a lot of time compared to drafting or re-drafting a traditional contract.
It’s easier to monitor, track, and find data
Have you ever found yourself looking through page after page of a paper contract just to find one word, phrase, date, or even typo?
If you have multiple versions of the same contract, you could spend hours sifting through dozens of pages of several files just to find the smallest mistake or bit of content that you need to change.
By using electronic contracts and a software solution like PandaDoc, you can perform quick searches through a single document or throughout your entire database to find what you’re looking for.
You can find a term, a phrase, an amount, or another piece of information in a single online contract quickly and easily. Imagine how much time and energy you can save through quick searches.
How do you create an electronic contract?
With PandaDoc, writing an electronic contract is easy:
- Choose a template.
- Modify the document with drag-and-drop blocks
- Fill in the specific information: contacts, numbers, etc.
- Send the document to the other party for review
- Track the document through PandaDoc
Experience the advantages of electronic documents
As you can see, there are many advantages to using electronic contracts rather than traditional paper contracts.
Electronic contracts vs traditional contracts is no longer a fair fight.
You can save money in operations expenses, improve your productivity and efficiency, and create more secure electronic transactions with greater accountability.
PandaDoc also integrates easily with your CRM and other business-critical tools.
So don’t hesitate to book a demo or sign up for a free trial to experience all this firsthand.
Disclaimer
PandDoc is not a law firm, or a substitute for an attorney or law firm. This page is not intended to and does not provide legal advice. Should you have legal questions on the validity of e-signatures or digital signatures and the enforceability thereof, please consult with an attorney or law firm. Use of PandaDocs services are governed by our Terms of Use and Privacy Policy.
Originally published May 24, 2019, updated May 2, 2023
