A firm's peak borrowing needs will probably be overstated if it bases its monthly cash budget on the assumption that both cash receipts and cash payments occur uniformly over the month but in reality receipts are concentrated at the beginning of each month.

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If a firm assumes that cash receipts and payments occur uniformly over the month, it may overestimate the timing and amount of cash needed to cover payments. This can lead to overstated peak borrowing needs. If receipt of cash is actually concentrated at the beginning of each month, the peak borrowing needs may be lower than predicted by the uniform assumption.

A Firm's Peak Borrowing Needs Will Probably Be Overstated If