Repayment Capacity

Repayment Capacity refers to the financial strength of a buyer or borrower to repay trade-related debts (such as L/C payments, open account payments, bank financing, etc.) on schedule. In foreign trade, it is commonly used to assess a buyer's credit risk and decide whether to accept open account (O/A), documents against acceptance (D/A), or provide buyer's credit. Use cases include: exporters investigating new customers, banks conducting credit reviews before issuing letters of credit or guarantees, and export credit insurance agencies setting credit limits. Note: Repayment Capacity differs from Willingness to Pay—the former focuses on cash flow, assets, and profitability, while the latter involves business ethics and legal constraints. It also differs from Solvency, which emphasizes the long-term state of assets exceeding liabilities. Assessment should combine financial statements, bank credit reports, historical payment records, and industry cycles. If repayment capacity is insufficient, exporters should require prepayment, a letter of credit, or a guarantee. Distinction: Repayment Capacity is a dynamic short-to-medium-term concept, whereas credit rating is a comprehensive static judgment.