Are Electronic Signatures valid on credit applications?

By Phyllis Saavedra, Order to Cash Executive and SME at Emagia Corporation

Most credit departments still use paper or faxed versions for their credit applications. The pace of business continues to accelerate and Sales is expected to close deals faster. In order to stay competitive, many credit departments are prompted to revisit their credit application process and consider credit approval process automation. This brings up the very pertinent topic of electronic credit applications and the validity of electronic signatures.

They are the most secure, convenient and easy way of transacting documents, contracts and letters, so why are people so hesitant to use electronic signatures? The most common fears are associated with legality, forgery and someone inappropriately signing on your behalf. All of these are nearly impossible if you use a trusted solution.

Understanding electronic and digital signatures

Before you embark on using e-signatures first and foremost you need to understand the difference between an electronic signature and a digital signature. This is often the problem when questions of legality with a document arise. A simple electronic signature is any electronic means by which you submit consent or acceptance of documentation. It may simply be a box where you are asked to input your initials. Not all of these will hold up in court. By comparison a digital signature on the other hand is an advanced electronic signature and takes the form of a script that is associated with a person. Typically, and I am by no means an attorney, a signature on the documents signifies intention to accept the terms of the text. For a digital signature you must have a certificate-based digital ID. Since digital signatures are far more secure they are being widely used for regulatory filing in many countries such as the United States, the European Union, India and Brazil.

Enforceability of electronic signatures

In the United States most states have adopted the Uniform Electronic Transactions Act (UETA). At its most basic level the Act provides rules for those that MUTUALLY agree to transact electronically. A federal regulation, the Electronic Signatures in Global and National Commerce Act (ESIGN) was passed in 2000. The objective of these two Acts is to establish that electronic records and signatures are viewed on the same legal level as traditional paper documents and handwritten signatures.

Security risks associated with electronic signatures

So they are legal, can I really trust the security of an e-signature? Again, this is where the important distinction between electronic and digital signatures comes into play. Electronic signatures are not as secure. Digital signatures are by design embedded in the document and cannot be forged. Without the encryption you may risk (and that risk it is still a very low) the desired levels of authentication and confidentiality you desired. For added peace of mind make certain you are using a respected e-sign provider with an industry standard authentication function.

Many of us have signed a document on behalf of a spouse, a boss or a co-worker upon their request. It is fairly universally understood that signing on behalf of another, at their request and with their permission is okay. Digitally or on paper without consent it is considered forgery and you may be committing fraud. Forgery is illegal.

Digital signatures are designed with two different kinds of translation keys that are essential for your security. The public key creates a digital signature by transforming the data into an indecipherable code. The second key, the private key verifies that signature and returns the message in its original form. A person should only give out their public key to those with whom they wish to do business. You can put it on your corporate website or attach it to the document. Your private however is only known to you and perhaps a limited number of other authorized signers. The private key creates the digital signature. When you send a document the recipient must have your corresponding public key in order to verify the digital signature. Simply put the two keys must talk and verify the validity of each other. Your signature is completely secure a long as you keep your private key PRIVATE. Your signature is attached to the document itself. Change the document and a different signature will be produced.

Growing usage of digital signatures

The old ways of doing business are quickly changing. E-signatures are now becoming prevalent in all aspects of our lives. We use them for contracts, tax and banking documents and a whole host of other areas. At my company Emagia we educate our customers on the automation of the corporate credit process. One of the biggest time-saving efficiencies we promote is online credit applications with digital signatures. The digital signature legitimizes the credit application, speeds up the customer onboarding process and keeps our customers from having to print paper applications.

If the above arguments don’t alleviate most of your doubts I will appeal to your environmental nature. Each year in America it is estimated that the average US office worker uses approximately 10,000 sheets of copy paper each year. Not only is this wasted paper, but ends up costing somewhere around $195 billion.

The time is now to set your reservations aside and take one of the easiest steps to automating and expediting your business processes. Cut operational costs, improve efficiency and collaboration, address legal compliance issues and possibly most importantly Go Green! Talk to a trusted legal advisor and get onboard quickly so you can help your organization make faster credit decisions and improve customer satisfaction.

Phyllis Miller Saavedra is currently the Director of Order to Cash Solutions at Emagia Corporation. She has been working in the field of credit and collections for more than 20 years. Over the years she has held senior management roles in companies such as Cisco, Aspect, Novellus, SanDisk and Saba Software. Additionally she has extensive experience as a consultant in all areas of the order to cash lifecycle. She can be reached at 408.386.8462 or by Email at