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How POS Systems Improve Inventory Management

Donna Fuscaldo
Donna Fuscaldo

Here's everything you need to know about POS inventory management.

Inventory management is becoming increasingly important for small business owners who are now selling in multiple channels. Whether you're running a retail store, e-commerce site or both, you need a system that tracks all of it, and that's where POS inventory management comes in.


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What is a POS system?

A point-of-sale (POS) system comprises hardware and software that facilitates and processes card payments for products purchased at a retail store, restaurant or even online. Depending on the type of operations, a POS system can include a cash draw, credit card reader, receipt printer and barcode scanner. The POS software records sales transactions and either includes or integrates with payment processing services. It often integrates additional business systems as well, such as your accounting and CRM software. Many of the popular POS systems are cloud-based, with vendors charging monthly subscription fees.

What is POS inventory management?

POS inventory management is much more than listing the items you're selling. It entails managing the SKUs for different items and tracking the items you sell and have in stock. A good POS inventory management system automates both inventory tracking and purchase ordering.

"When a retailer purchases new inventory, [they] need a way to receive it into their inventory management system. Once that inventory has been received, they need a way to ensure that their quantities on hand remain accurate over time," Leah Walkiewicz, product manager at Square for Retail told "When inventory management is done effectively, businesses can reduce the costs of carrying excess inventory while maximizing sales."

What are the benefits of using a POS for inventory management?

Effective inventory management is essential for any size business, but for small retailers and restaurant owners, the difference is especially pronounced. Integrating your inventory management with your cash register reduces the chance of any costly inventory mistakes.

"In a year when every sale counts even more than usual, POS inventory management can help ensure that small businesses maintain an accurate view of their available stock, know what's selling well (and what's not), and ultimately never miss a sale," Walkiewicz said. "When you have a clear view of your inventory, you can make better decisions about planning for the future, which gives you more flexibility to sell across multiple channels."

Here are five benefits of using a POS for inventory management:

  • Track inventory. A POS system enables a business owner to track inventory, whether they have one store or three. The POS terminals at each location are tied into the accounting and inventory systems of the business. That means you don't have to be on-site at each store to see what's on the shelves.
  • Automate purchase ordering. POS software with built-in inventory management can automate the purchase-ordering process by alerting you when inventory is depleted below a set threshold. More advanced tools do the ordering for you.
  • Identify trends. A big benefit of using a POS system is the reporting tools that show you which items are moving and which items are languishing. You can filter this data by week, month and year, which helps you identify sales trends. With this information, you can adjust your purchase ordering so you have hot items in stock when your customers want them.
  • Expand your inventory. If your inventory management is optimized, it's easier to handle more products, which means that you can increase the number of SKUs in your inventory. Having more items to sell improves your potential to increase sales.
  • Improve cash flow. The last thing you want is inventory sitting on shelves. A POS system reduces excess inventory situations by tracking what sells and what doesn't. Stocking the right products – and the right amount of them – lowers your costs and boosts your cash flow.

"If you have a product-based business, it's important to make sure you serve the demand," said Opher Kahane, vice president of QuickBooks Commerce. "In a world where sellers need to operate across multiple sales channels, they need to avoid situations where they're not able to deliver."  

How do POS terminals help with inventory management in a retail store?

Beyond serving as a cash register, a POS system tracks inventory and pricing in real time. As soon as a product is purchased, the system is updated. It doesn't matter which location the transaction occurs in.

For a retail owner with multiple stores, a POS system is invaluable for inventory management. You don't want to run out of inventory at one location but have excess stock at another store or your warehouse.

"Now more than ever, it's important to be able to meet your customers wherever they are, and being able to manage and sync your inventory across all the ways you sell is critical," said Walkiewicz. "Another key piece is inventory management software that allows you to view reports and data in real time. This can help you know exactly what you have in stock and makes it easier to sync and sell across multiple channels."

What is restaurant inventory management?

Tracking inventory when operating a restaurant is more nuanced than selling products from a store. It's not only about the finished good but the ingredients that went into making it.

"For a restaurant, it gets much more complicated," said Mark Schulze, co-founder of Clover. "The owner isn't seeing spaghetti marinara – it's someone ordered spaghetti, how much is left? How much marinara sauce is left? How many spices are left?" (Looking for an iPad Restaurant POS System? Check out our review.)

POS systems have reduced the complexity of inventory management in restaurant settings. Tools enable restaurant owners to track the availability of ingredients and drinks in real time, preventing them from running out of popular items.

Good restaurant POS software also includes low-inventory alerts that notify you when supplies are low and may even be able to automatically reorder supplies to replenish inventory.

When inventory is being tracked and automatically replenished, it means fewer lost sales or sales of lower-margin options. "Restaurant owners want to run their restaurants and make good food," said Schulze. "Trying to figure your cost per dish is challenging."

How to use POS systems to track inventory

Tracking your inventory with a POS system is easy due to point-and-click software that resides in the cloud. All it takes is uploading your inventory and enabling the tracking feature. You can also set customized alerts for low stock or sold-out items.

POS system recommendations for inventory tracking

When it comes to choosing a POS provider, options abound, but there are a few standouts, including the following:

  • Clover POS' inventory management app offers several features, including real-time tracking, customized inventory alerts and ingredient-level inventory If you need advanced inventory tracking software, additional options are available in the Clover App Market. [Check out our full review on Clover POS.]
  • Square for Retail lets merchants manage inventory quickly and easily. Business owners can view stock levels across all their channels, print barcode labels and get alerts when stock hits certain thresholds. Square for Retail's inventory management software also enables customers to transfer stock across sales channels in real time, and create and send purchase orders to vendors.
  • Lightspeed makes it easy to track your inventory regardless of the type of product you're selling. Lightspeed's inventory management software lets you create product variations based on size, color, and material; bundle individual items to sell as a package; create special orders; and track inventory and SKU levels across multiple locations.
  • TouchBistro makes managing food and ingredients easy for restaurant owners. With TouchBistro's POS software, customers can track food and ingredient costs, determine the profit margins for menu items, and update staff on inventory levels with real-time alerts.
Image Credit: jacoblund / Getty Images
Donna Fuscaldo
Donna Fuscaldo Staff
Donna Fuscaldo is a senior finance writer at and has more than two decades of experience writing about business borrowing, funding, and investing for publications including the Wall Street Journal, Dow Jones Newswires, Bankrate, Investopedia, Motley Fool, and Most recently she was a senior contributor at Forbes covering the intersection of money and technology before joining Donna has carved out a name for herself in the finance and small business markets, writing hundreds of business articles offering advice, insightful analysis, and groundbreaking coverage. Her areas of focus at include business loans, accounting, and retirement benefits.