What it lets a funder do
With a signed confession of judgment, a funder that declares a default can file it with a court and obtain judgment without notifying you and without you being heard.
The practical consequence is a frozen bank account, sometimes as the first you learn of it. Unwinding that means moving to vacate the judgment, which costs money and time you are unlikely to have in that week.
It converts a commercial disagreement into an enforcement action, and it does so on the funder's say-so about whether a default occurred.
What changed, and what did not
New York — where a very large share of these agreements were filed, because of the volume of funders based there — amended its law in 2019 so confessions of judgment could no longer be entered against debtors located outside the state.
That closed the most abused route. It did not abolish the instrument, and agreements governed by other states' law can still include them.
Governing law is therefore worth reading. Which state's courts hear a dispute, and where you can be sued, are terms as real as the factor rate.
What to do if one is in front of you
Ask for it to be removed. Plenty of funders will write the deal without one, and asking tells you a great deal about who you are dealing with.
If it is not negotiable, treat that as information about the offer rather than as a formality. It is the term that determines what happens on your worst month, not your best.
Have a lawyer read it. This is the one clause in a funding agreement where an hour of legal time is unambiguously worth the cost.