“It’s a collection department’s nightmare: an agency refuses to pay an invoice, and a signed original hard-copy contract cannot be offered to the courts because it no longer exists,” says Robin Szabo (left), president of media collection firm Szabo Associates Inc. Two questions lie at the heart of the issue, he says: “Is an electronic contract a valid document?” and “Are the signatures on the contract authentic?”
In my last column, I described several ways that the industry is developing electronic initiatives that help to streamline the ad sales process, improve customer relationships and accelerate payments.
However, whether you work with a media company or an ad agency, there is something comforting about having those tangible documents. In fact, there have already been questions raised about the validity of electronic agreements and signatures.
Not surprisingly, the first time these questions are raised is often when a dispute arises between the collections department for a media company and a non-paying advertiser. Since this problem is likely to affect an increasing number of our members, we asked former MFM Board Member Robin Szabo to address it in a recent issue of our member magazine.
“It’s a collection department’s nightmare: an agency refuses to pay an invoice, and a signed original hard-copy contract cannot be offered to the courts because it no longer exists,” reports Szabo, president of media collection firm Szabo Associates Inc.
Two questions lie at the heart of the issue, according to Szabo: “Is an electronic contract a valid document?” and “Are the signatures on the contract authentic?”
He finds these questions are arising more frequently both as a result of both the wider adoption of the electronic generation and transfer of documents and as a growing number of organizations adopt the policy of scanning old documents, destroying originals and generating new documents electronically.
To help its clients address these challenges, Szabo Associates posed questions about the validity of non-original documents in the courts to a number of attorneys across the country. “They agreed that while originals are best, copies can be acceptable in the majority of cases.”
What do you do if you no longer have the original documentation?
“Generally,” says Szabo, “the court asks for an original when entering the judgment. The court will almost always accept a copy in lieu of the original if the original is lost or destroyed.”
Szabo went on to add that an affidavit or testimony by a sworn witness that the copy is true and correct and/or that the company has a “scan and destroy” policy will usually suffice as evidence.
But what if no piece of paper ever existed, a situation that’s likely to occur more often in the future as media companies and agencies create and sign contracts in electronic form only?
Szabo replied that the Electronic Signatures in Global and National Commerce Act (ESIGN Act), which was passed by Congress in 2000, was enacted to help ensure the validity of e-contracts and the defensibility of e-signatures.
In addition, The Uniform Electronic Transactions Act (UETA) was approved by the National Conference of Commissioners on Uniform State Laws in 1999 to address state statues concerning the validity of e-contracts and the defensibility of e-signatures. UETA has since been adopted in all but three states — Washington, New York and Illinois, which have their own electronic signatures statutes.
Szabo notes that a significant difference between ESIGN and UETA is that UETA requires the parties must sign notices that they have agreed to conduct transactions by electronic means prior to the actual transaction.
“The type of agreement required for the e-signature to be valid varies according to context and circumstances,” Szabo warns. “Additionally, electronic documents must be available to all parties to view, print and store electronically in order to be legally binding.”
Szabo also points out that neither ESIGN nor UETA adequately addresses the question of authenticity. “Even with all these requirements in place, there may be instances when authenticity of an e-signature remains in question, and here is where personal knowledge of the agency and advertiser can pay off.”
One of the unintended consequences of digital communications is what Szabo calls, “an increasingly depersonalized business environment.” He says, “a good practice for dealing with e-signature validation has the added benefit of enhancing the business relationship between parties.”
Szabo encourages credit and collections professionals to foster an ongoing relationship by talking with the agency and/or advertiser signatories prior to the electronic signing. In addition, having additional evidence of the signatory’s intent to do business (such as previous payments, completion of credit applications and other documents) can reduce the risk that the signature is invalid, he finds.
Companies will also want to re-examine their record retention polices to help ensure they are in keeping with the business’s shift toward electronic documentation, Szabo says. “Document files on all accounts, dating as far back as the accounts were established, should be backed up and stored securely to ensure that the data is never at risk of being lost or purged. A situation may arise in which information in a credit application completed years ago must be relied upon to prove payment liability.”
As we discussed in the last installment of Front Office, electronic documentation has been a boon to businesses seeking to save the time, money and resources. Robin Szabo’s observations, which appear in the current “Where Credit is Due” section of MFM’s The Financial Manager magazine, help to ensure that we also adapt our client relationships and company polices to in order to optimize the financial benefits of our e-initiatives.
However, I hope your research won’t stop here. Please consult your company’s legal counsel to help ensure that your electronic documentation practices are in keeping with your organization’s polices. We will also continue to provide updates and advice from the industry experts we are proud to count among the members and contributors for MFM and our BCCA subsidiary.
This will include the wealth of knowledge that will be shared later this month at Media Finance Focus 2012, our annual conference. In the meantime, don’t hesitate to share your ideas or ask our experts on front office matters like this one.
Mary M. Collins is president and CEO of the Media Financial Management Association and its BCCA subsidiary. Her column appears in TVNewsCheck every other week.You can read her earlier columns here.