There are various reasons why a company suffers a bad debt in its account. The reasons may vary across types of companies. This study focuses on the bad debts or arrears of local state owned water supplies (PDAM). Economic crisis may not be the sole factor affecting the financial problems ofthe companies. However, the crisis itself has given strong impact on the capacity to generate cash and, hence, the capacity to repay their obligation. In the case oflndonesia, it is found that some variables representing the capacity to repay strongly influence the companies to repay arrears. This study attempts to explore whether the capacity to repay of the firms are related to the arrears. It seems that this study is still in line with other studies saying that the main reason of the arrears is the unwillingness to repay