Is an electronic signature valid?

Yes. Under the ESIGN Act (15 U.S.C. ch. 96) and UETA (adopted by most states), an electronic signature is legally valid if intent, consent, attribution, and record retention are satisfied.

When is notarization required?

Notarization is only required when the recipient or state law explicitly demands it, or when a document type (deed, certain affidavits) triggers notary necessity; verify state requirements before notarizing.

What supporting documents should I attach?

Attach only documents that directly substantiate the facts you assert (bank statements, contracts, invoices). Label each attachment and reference it by number in the letter for quick verification.

Who can sign the letter?

An authorized officer, controller, attorney, or documented agent may sign. If the signer is an agent, attach evidence of authority such as a corporate resolution or power of attorney.

Can I submit the letter electronically?

Yes, if the recipient accepts electronic records. Use platforms that provide an audit trail, secure transmission (TLS), and reliable retention to meet evidentiary needs.

What happens if facts change after signing?

Prepare a supplemental letter dated and signed that references the original, describes the change, and attaches updated supporting documents to preserve a clear audit trail.

Electronic Signature
Templates
Miscellaneous
Business Letter of Explanation

Business Letter of Explanation

This template is fully customizable. Edit the text, fill out the fields, and send it for signature. Give it a try!

BUSINESS LETTER OF EXPLANATION

Date:

Parties

Company Name: Company Address: Recipient / Addressee Name: Recipient Address:

WHEREAS

WHEREAS, Company Name: is engaged in legitimate business activities and provides the background information described herein; and

WHEREAS, Recipient Name: has requested a written explanation of certain business matters and transactions referenced by Reference/Account Number: ; and

WHEREAS, the parties intend this Letter of Explanation to provide a factual and binding statement of the matters described below for reliance by the Recipient and specified third parties where authorized by this document.

Scope of Explanation

The Company provides the following explanation of the facts, events, and documents relevant to the matters described above. This explanation is truthful to the best of the Company's knowledge and is provided for the specific purposes stated herein.

Detailed Explanation (Scope of Work):

Payment Terms (if applicable)

If this Letter of Explanation accompanies or constitutes part of a commercial transaction, the following payment terms apply:

Agreed Amount: Payment Schedule or Milestones: Late Payment Fee (if any):

Term and Termination

This Letter of Explanation is effective as of Start Date: and shall remain in effect until End Date: , unless earlier terminated as provided below.

Notice Period for Termination (days): Termination for Cause (describe grounds):

Confidentiality

The parties acknowledge that certain information disclosed in connection with the matters described in this Letter of Explanation constitutes confidential business information. Each party agrees not to disclose Confidential Information to any third party except to employees, agents or professional advisors who have a need to know and who are bound to confidentiality obligations at least as protective as those set forth in this paragraph.

Confidentiality Exceptions (if any):

Certification: The undersigned certifies that the statements made in this letter are true, accurate, and complete to the best of their knowledge and that they are authorized to make such statements on behalf of the party they represent.

Governing Law

This Letter of Explanation shall be governed by and construed in accordance with the laws of the State of without regard to its conflicts of law principles.

Entire Agreement

This Letter of Explanation constitutes the entire understanding between the parties with respect to the matters addressed herein and supersedes all prior communications and agreements, whether oral or written, relating to such matters. Any amendment or waiver must be in writing and signed by both parties.

Acknowledgment

By signing below, the parties acknowledge receipt of this Letter of Explanation and represent that they have read and understood its terms and that the statements contained herein are true and accurate.

Company Representative:

By:

Date:

Recipient / Authorized Signer:

By:

Date:

What a Business Letter of Explanation Is

A Business Letter of Explanation is a concise written statement provided by a company or authorized representative to clarify facts, discrepancies, or unusual items that affect a transaction, application, or regulatory review. Common uses include explaining gaps in revenue, unusual accounting entries, changes in ownership, missing documentation for loan underwriting, or anomalies discovered during compliance reviews. The letter should be factual, dated, signed by an authorized signer, and supported with relevant attachments to make the explanation verifiable and actionable by the recipient.

Why a Clear Letter of Explanation Matters

A well-prepared Business Letter of Explanation reduces processing delays and helps recipients assess risk quickly. It provides documented context that can prevent misinterpretation, avoid follow-up requests, and support regulatory or underwriting decisions.

Who Typically Provides or Receives This Letter

The letter is used across business, legal, and financial workflows when a simple factual statement can resolve a question or exception.

Lenders and underwriters requesting clarification on income, deposits, or ownership changes.
Accountants or auditors needing explanations for unusual ledger entries or one-time adjustments.
Compliance teams reviewing client onboarding exceptions or identity verification discrepancies.

Use a Business Letter of Explanation whenever a short, documented narrative will expedite review and reduce the need for supplemental requests.

Typical Signers and Preparers

CEO / CFO

A chief executive or finance officer often signs when explaining company-level matters such as ownership changes, major revenue variances, or material accounting adjustments; the narrative should reference supporting documents and affirm accuracy under penalty of law.

Authorized Agent

An authorized signatory, such as a controller, attorney, or compliance officer, may prepare and sign when the company delegates explanation duties; include documentation of authority and contact information for follow-up verification.

Essential Data to Include

Company Name: Full legal entity name

Date: MM/DD/YYYY

Authorizing Signer: Name and title

Reference Number: Loan, invoice, or account ID

Statement of Facts: Clear short summary

Attachments: List of supporting documents

Key Risks from Inaccurate Explanations

Delay in Processing: Requests for additional information

Rejection Risk: Application or claim denial

Regulatory Exposure: Possible compliance investigations

Tax Penalties: Incorrect returns trigger IRC §6721 fines

I-9 Violations: Paperwork fines under 8 CFR §274a.2

Reputational Harm: Loss of trust with counterparties

Common Preparation Mistakes to Avoid

Omitting exact dates or identifiers that tie the explanation to a specific transaction or document, which creates ambiguity and triggers follow-up requests.
Providing opinion or speculation instead of verifiable facts and supporting documents, which weakens credibility with reviewers.
Failing to show signer authority or failing to sign and date the letter, which can invalidate the explanation for formal processes.
Using vague language like 'reasonable' without quantification; specifics reduce interpretation risk and speed decision-making.

Step-by-Step: How to Draft the Letter

Follow a brief, logical structure so reviewers can verify facts quickly and close their review without additional questions.

01

Identify the issue: State the specific item needing explanation
02

Provide facts: Describe dates, amounts, and parties involved
03

Attach evidence: Reference and append supporting documents
04

Sign and date: Authorized signer signs MM/DD/YYYY

Typical Review Flow After Submission

Understanding the recipient workflow helps you include the right details and speed resolution.

Submit: Sender attaches letter and supporting files
Receive: Recipient logs and links to the case file
Verify: Reviewer checks attachments and facts
Resolve: Decision or follow-up communicated

What a Professional Business Letter of Explanation Contains

A well-structured letter balances concision with verifiability: clear identification, factual narrative, supporting attachments, and an authoritative signature so reviewers can act without extra clarification.

Header

Company name, address, recipient name, and a clear reference to the underlying transaction or file number so the letter ties to the correct record.

Purpose Statement

One-sentence opening that states the reason for the letter and what specific issue it addresses, e.g., deposit source, income gap, or ownership change.

Factual Narrative

Concise chronological description of facts with dates, amounts, and parties. Avoid conjecture and stick to verifiable details the recipient can confirm.

Supporting Evidence

A numbered list of attachments such as bank statements, contracts, closing statements, invoices, or corrected forms that substantiate the facts asserted.

Authority & Contact

Name, title, phone and email of the signer plus a brief statement of their authority to speak for the company for follow-up verification.

Signature Block

Typed name, printed title, handwritten or electronic signature, and the date; include notarization only if requested or required.

Practical Tips for Clear Explanations

Small formatting and verification choices make your explanation easier to accept and process.

Keep it concise and factual

Limit the narrative to the facts necessary to resolve the issue; use numbered points and avoid long essays. Short, direct sentences reduce reviewer effort and speed decisions.

Label attachments clearly

Name each supporting file with a reference number and description that matches references in the letter to avoid confusion during review.

Confirm signer authority

Attach a corporate resolution, power of attorney, or title confirmation if the signer is not an obvious executive to prevent verification delays.

Use consistent dates and amounts

Cross-check figures and dates against supporting documents; inconsistencies prompt verification steps and slow processing.

Timing Considerations and Typical Deadlines

Deadlines depend on the receiving process; provide the letter promptly when requested to avoid late-filing consequences or underwriting delays.

On Request:

Provide immediately on recipient request to avoid processing holds

Loan Underwriting:

Deliver within the lender’s outstanding document timeframe

Tax Filings:

Submit corrections before IRS penalties apply

Immigration or Benefits:

Respond by agency deadline to prevent denial

Contract Closings:

Provide prior to scheduled closing to avoid postponement

Comparing eSignature Vendors for Letters and Attachments

Platform choice affects cost, compliance, and features such as bulk send and envelope limits; compare core items relevant to secure submission.

	signNow	DocuSign	Adobe Sign	PandaDoc	HelloSign
Starting Price	$8/user/mo	$15/user/mo	$14/user/mo	$19/user/mo	$15/user/mo
Free Trial	7-day free trial	Varies by plan	Varies by plan	Varies by plan	Varies by plan
Bulk Send	Yes	Varies by plan	Varies by plan	Varies by plan	Varies by plan
Audit Trail	Yes	Yes	Yes	Yes	Yes
HIPAA Compliant	Yes	Yes	Yes	No	No
Envelope Cap	No envelope cap	100 envelopes/user/year	Varies by plan	Varies by plan	Varies by plan

Configuring an Electronic Submission Workflow

Set up authentication, required fields, and notifications to match the recipient’s verification expectations and your audit needs.

Field	Configuration
Document Type	Select 'Letter of Explanation' template
Authentication	Email link or SMS code; use stronger ID when required
Required Fields	Signer name, date, reference ID, attachment list
Notifications	Enable sender and recipient completion alerts

Technical Options for eSubmission

Choose an eSignature platform that supports required authentication, audit trails, and file formats accepted by the recipient.

Integrations: Salesforce, Microsoft 365, NetSuite, Google Workspace
File Formats: PDF, DOCX, and OCR-friendly scans
Security: TLS 1.2/1.3 and AES-256 at rest

Confirm the recipient accepts electronic copies and whether they require notarization or a specific signer authentication method before submitting.

Real-World Examples of Business Letters of Explanation

These short case examples show how concise factual letters resolved common exceptions without long review cycles.

Optica Ventures LLC

Optica provided dated bank statements to explain an irregular deposit

The deposit matched a one-time equity contribution
The lender closed the funding after verifying the attachments and the CFO’s signed statement, avoiding additional underwriting conditions and a delay in disbursement.

Fertility Centers of Illinois

The clinic explained an income timing discrepancy for grant disbursement

Management attached invoices and payment receipts
The funder accepted the documentation and processed the payment after confirming the signer’s authority and the attached financial records.

Frequently Asked Questions About Business Letters of Explanation

Answers address signature validity, required supporting documents, notarization, electronic submission, and common recipient expectations.

Need help? Contact support

Is an electronic signature valid?
Yes. Under the ESIGN Act (15 U.S.C. ch. 96) and UETA (adopted by most states), an electronic signature is legally valid if intent, consent, attribution, and record retention are satisfied.
When is notarization required?
Notarization is only required when the recipient or state law explicitly demands it, or when a document type (deed, certain affidavits) triggers notary necessity; verify state requirements before notarizing.
What supporting documents should I attach?
Attach only documents that directly substantiate the facts you assert (bank statements, contracts, invoices). Label each attachment and reference it by number in the letter for quick verification.
Who can sign the letter?
An authorized officer, controller, attorney, or documented agent may sign. If the signer is an agent, attach evidence of authority such as a corporate resolution or power of attorney.
Can I submit the letter electronically?
Yes, if the recipient accepts electronic records. Use platforms that provide an audit trail, secure transmission (TLS), and reliable retention to meet evidentiary needs.
What happens if facts change after signing?
Prepare a supplemental letter dated and signed that references the original, describes the change, and attaches updated supporting documents to preserve a clear audit trail.

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