How Do Digital Signatures Work?
Signing documents has come a long way in recent years. It used to be that to approve a document, you needed to carry it from point A to B to get a signature. And if you needed it to be saved electronically, you’d have to scan it.
Today, digital signatures are the norm. But many organizations still have questions… Especially government agencies in light of the 21st Century Integrated Digital Experience Act (21st Century IDEA) and the deadlines coming up for compliance.
What are they? How do digital signatures work? Are they legal? Why should you use them? And, more important, where (and when) should you use digital signatures?
Let’s start with the basics.
What is Digital Signature?
Simply put, a digital signature is the electronic equivalent of a handwritten signature.
There are typically two types of digital signatures used by businesses. The first is a wet signature, which is an individual’s signature captured digitally. The second is a pin-based signature, which is a series of numbers you enter to verify your identity.
How Do Digital Signatures Work?
In practice, using digital signatures is fairly straightforward.
Digital signatures are unique to each signer, just like handwritten signatures. That’s because they’re based on public key cryptography.
Cryptography is a mathematical calculation that makes a document or message unreadable during transmission. An algorithm is used with two related keys, private and public. The private key is used for creating the digital signature. And the public key is used to verify the signature and make the document or message readable.
Here’s an example. You deliver a shipment to a customer. The customer needs to sign. And you need to bring that signed document back to your warehouse to be retained.
Digital signatures and document management can accelerate this process. The customer can sign on a tablet or smartphone. And that signed document can be instantly saved in your document management system. There’s no need to carry paper around.
Are Digital Signatures Legal?
Digital signatures are legal, just like their handwritten counterparts.
Legislation like the Uniform Electronic Transactions Act (UETA) and the Electronic Signatures in Global and National Commerce Act (ESIGN) made the use of digital signatures legal years ago. Now, not only are they legal, but in the U.S., they will be part of standard practice in government use.
Where Should You Use Digital Signatures?
There are many business documents—both internal and external—that require signatures. For starters:
- Purchase orders
- Expense reports
- Loan applications
One of the best uses of digital signatures is in an approval process. By using digital signatures and routing documents electronically, you can shave hours, days, or even months off an approval process.
Why Use Digital Signatures?
You should use digital signatures to reduce paper, save time, and keep documents secure.
Many industries have already embraced digital signatures. Financial institutions use digital signatures for loan applications. Retailers use digital signatures to accelerate transaction processing times. Delivery companies like FedEx and UPS collect signatures digitally on the spot—and instantly confirm deliveries. Pharmaceutical companies use digital signatures to speed up regulatory approval processes with the FDA. Government agencies now need to implement digital signatures in their website services in order to comply with IDEA leagislation.
When you pair digital signatures with document management systems, you can:
- Reduce paper
- Get approvals faster
- Free up employee time
- Retain documents—and keep them secure
Digital signatures are one of the basic tenets of electronic document management. Download The Document Management Guide today to learn more.