What Is a POS System? (and Other Common Questions Answered)

By Skye Schooley,
business.com writer
| Updated
Aug 21, 2020
Image Credit: Patrick Daxenbichler / Getty Images
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Learn what a POS system is, how it works and how your business can benefit from having one.

  • A point-of-sale (POS) system allows businesses to complete purchases, record sales data and view business performance reports.
  • Some POS systems have additional features like employee, customer and inventory management.
  • Businesses should purchase a system that easily integrates with their other business platforms, like accounting and marketing applications. 

To complete a sales transaction, your company will likely need a POS system. There are several types of POS systems, each with its own features and functionalities; for example, you can get a simple platform to conduct sales transactions or one that includes various operational capabilities, like inventory management. 

The best POS system for your business depends on your company size, industry, budget and the features you need. There are so many systems to choose from.  In this article, we break down what a POS system does and what features you need to be on the lookout for so you choose a system that is perfect for your business and your budget. 

 

Editor's note: Looking for the right POS system for your business? Fill out the below questionnaire to have our vendor partners contact you about your needs. 

 

 

What is a POS system?

A POS system comprises two elements: POS software and POS hardware. POS software is a digital technology platform that completes purchasing transactions. Software can be cloud-based or local server-based; however, cloud-based software is more popular with small business owners due to its usability, affordability, security and convenience. Cloud-based software allows you to access your sales data from any device as long as you have an internet connection – this even includes devices offsite. Although local server-based software offers more stability, it's more expensive and typically geared toward enterprises. 

POS hardware refers to the physical components – a tablet, tablet stand, cash drawer, receipt printer, and a card reader, or credit card terminal – needed to conduct the sales transaction. Depending on your industry and budget, you can integrate additional POS hardware, including barcode scanners, customer display screens, caller ID devices, kiosks, coin dispensers, kitchen printers, kitchen display systems, digital menu boards, scales, and tablet cases. 

Mobile POS systems are becoming the most common choice for small and medium businesses, especially those that need additional flexibility in their sales processes. 

How does a POS system work?

The basic function of a POS system is to complete sales transactions. However, Jared Weitz, CEO and founder of United Capital Source Inc., said data from these transactions can be used for many other business functions. 

"When a customer wants to complete a transaction, you will utilize a POS system to run their payment (card or cash)," Weitz told business.com. "The POS will generate the transaction and contain all of the data gathered from it. This data can then be stored within the system for inventory tracking, financial reporting, and hosting customer information for future contact and reference." 

Ideally, your POS system will have additional capabilities rather than simply recording sales. Some POS systems integrate with other programs to automate business operations and streamline information-sharing. For example, some POS solutions integrate seamlessly with accounting and marketing platforms. 

"Quality POS systems allow the business owner to manage all aspects of operations with multiple features and functionality, including reporting tools to help analyze data and make informed business decisions," said Annie Legge, head of marketing at 3S POS. "By automating various business tasks with [a POS system], you will be able to put additional time into other areas of the business."

What are the key features of a POS system?

POS systems have features that will help you manage your sales process better and improve customer service. 

"A POS system is the central hub for the majority of your business needs – sales, inventory, customer management, even employee benefits and hour tracking," Weitz said. "A great component of a POS is the fact that everything can live within one place." 

When looking for the best POS system for your business, consider a system that has the following features: 

  • Purchasing capabilities: Your employees can use the POS system to scan or key in the items that a customer is purchasing, add taxes and calculate the total amount of the sale. The system will then accept payment and generate a receipt.

  • Sales data recording: The POS system records and stores customer sales data either in the cloud or onsite to a local server, depending on the system you choose.

  • Inventory tracking and management: You can create a product catalog or menu in the system that you use when you're ringing up customer orders. The best POS systems also track inventory and automatically update quantities as items are sold. Some have low-stock alerts and purchase order features.

  • Third-party integration:  If you use other business programs to run your business, such as accounting software, payroll, and email marketing, you want a POS system that seamlessly integrates with third-party applications. This allows the various applications to share information automatically, eliminating the need to manually download and upload reports, customer lists, and other data.

  • Reporting: The POS system can generate a variety of reports that help you measure business performance and analyze data for your sales, products, customers and employees.

  • Loyalty programs and customer management: Most POS systems have basic customer management tools that allow you to record customer information and create customer profiles that you can use for marketing purposes. Loyalty programs are often available as an add-on feature (that costs extra) or as an integration.

  • Employee management: The POS system should allow you to restrict employee access and capabilities, and record employee sales. Some include time tracking and scheduling features, but these features are often add-ons or integrations. 

Although not every feature may apply to your business or industry, you will, at the very least, need purchasing capabilities and sales recording. Brian Cairns, CEO of ProStrategix Consulting, said that most businesses benefit from inventory tracking and integration. 

"It benefits the business when POS systems have inventory control and interface with your accounting software so you can automatically record total revenue, discounts, returns, cost of goods, sales taxes, etc.," said Cairns.   

Legge said that any good POS system will give you access to valuable data and reporting tools so you can gain insights into trends and overall business performance in relation to your goals. 

"Modules include stock control, sales, customer relationship management, reservations, accounts and staff management," said Legge. "With this type of reliable system in place, you'll spot areas that are performing well and improve those that need more attention. By following this process, your business will become more efficient." 

Although employee and customer management capabilities are not always necessary features, Legge said these can be extremely helpful for building brand loyalty, connecting with your customers and managing employees. 

"[A POS] system allows you to connect with your customers on a whole new level," she said. "With reward programs, branded loyalty cards and promotions via integrated apps, there is more room for a relationship to grow with your customers. From an HR and employee engagement point of view, the right system will give you insights into performance and attendance." 

Costs of a POS system

POS systems are an investment. Understanding how they will impact budgeting is a matter of breaking down their costs.

Hardware

Like any system, POS hardware will vary in costs. Most will depend on what you want and need. Some hardware pieces to consider are an iPad (or other touchscreen devices), a barcode scanner, a cash drawer and a receipt printer.

Small businesses can often get away with just an iPad and digital receipts. If your store experiences a high volume of customers, though, you'll need features like physical receipts and cash management. Barcode scanners help with larger and fluid inventories.

Overall, you could expect to spend from $300 ($329 for a current iPad) to thousands of dollars if your POS is a freestanding computer with all of the bells and whistles. These prices are per station.

Software

Software costs also vary considerably. The most simple software applications generate a receipt for every sale (typically digitally). Even basic software usually includes some sales tracking and analysis, although it can be pretty light. Advanced software is capable of tracking your inventory and keeping it replenished, and it provides detailed sales analytics. It can unify POS systems across locations and has omnichannel support. Your price range will range from $99 a month up to $10,000 a month for the most advanced systems.

Services

Services include payment processing, contract billing and IT support. You can find plenty of other niche services, but those are the most common. The extent of services rendered will impact their costs, but payment processing is almost always the largest expense. It’s as varied as anything, but it is typically charged per transaction. As an example, Shopify charges 2.5 percent for payment processing.

Tips for choosing the best POS system for your business

Knowing what a POS can do and how much it will cost can help you make a good decision. These tips will help you put those ideas into context to choose the best possible system.

Traffic

It's the first consideration, because it dictates what you need from your POS. Typically, less-expensive systems run a little slower, and that makes them more suitable for retailers that experience a low amount of traffic. The inverse is also true.

Number of sales points

How many points of sale do you need? Are they mobile or stationary? The answers to these questions will determine many of your choices. Mobile vendors need substantially different hardware from a single shop with one cash register. If you need multiple sales stations, look at bundled pricing.

Features

There are countless features to consider, but four, in particular, to pay attention to are payment processing, support, inventory, and analytics. The importance of the features will vary depending on your business. For example, if you have some technical know-how or access to IT services, support may be less of an issue than a one-person operation. Payment processing can include methods your customers prefer to use when they patronize your business. Do they pay in cash sometimes? All the time? Do some customers pay with a check? Take your customers' preferences into consideration. Last, with inventory, some stores need powerful inventory management integration. Some businesses have no inventory at all.

Your needs will vary with the POS system, but by taking the time to evaluate what features are most important to you – and your customers – you will be able to find a POS system that is well suited for your store and that is easy to install and use.

POS system frequently asked questions

Q: Can you use a POS system on your phone?

A: The short answer: yes. There are two different ways to use a POS system on your phone. The first option is to record your sales data onto a cloud-based POS software application. 

"Modern POS systems allow the business owner to access valuable data and reports via any device with an internet connection, including a mobile phone," said Legge. "As the data from the POS is backed up to the cloud server, accessing the data can be performed either via a portal in an internet browser or a dedicated app." 

The second option, which is perhaps more convenient than the first one, is to perform sales transactions directly from your mobile device. Legge said that mobile cloud-based POS providers, especially those in the retail sector, allow small business owners to have a basic POS app on their mobile device and take payments via a small handheld card terminal.  

"This is great for retailers and businesses that have more than one location, that travel for distribution, or sell products at trade shows, booths, and markets on the go," added Weitz. 

Q: What is the difference between a POS system and a cash register?

A: The short answer: A cash register is part of a POS system. Using a cash register by itself is a somewhat antiquated way of managing sales, though, since a cash register's functionality is limited to calculating sales. 

"A cash register simply captures the transaction: purchase prices less any discounts, etc.," said Cairns. "A cash register alone would require a more manual system where sales are tallied at the end of the day, and discounts, returns, promotions, etc., would be added to balance the cash at the end of the day." 

This way of recording sales requires you to maintain a separate system for inventory management and bookkeeping. It also increases the likelihood of errors, whereas with a POS system, again, depending on which one you buy, these functions may be automated. 

Your budget and business size will be the two biggest deciding factors. 

"If you have a small business with a few transactions and minimal inventory, a POS system might be too expensive," Cairns said. "If you have numerous transactions across a number of saleable items, then the time saved by the POS would likely pay for [your investment into] it." 

Q: What is the difference between a POS system and POS software?

A:  The short answer: POS software is a part of a POS system. POS software is the platform used to complete sales transactions, plus it helps manage other business integrations. A POS system is the combination of POS hardware (e.g., a tablet, cash drawer, receipt printer, and credit card reader) and the software. 

When choosing a POS system for your business, consider both your current and future business needs. 

"If you are building a small business, invest in a more advanced POS that will not only meet your needs today but [will] set you up for success down the road," said Weitz. "Having to make adjustments and larger purchases later will only slow you down when your business is ready for growth." 

Q: What are the different types of POS systems?

A: The short answer: mobile/tablet, terminal, online (cloud-based) and self-service kiosk – or sometimes a combination of the different options. Since a POS system is made up of software and hardware, the type of POS system you create can vary. You can have a either a cloud-based (online) system or a local server-based (onsite) system. 

When choosing the hardware for your system, you can choose a mobile/tablet POS system or a stationary terminal system. Tablets/mobile are the most popular and desired type of POS, since they offer great flexibility. A terminal is an all-in-one system that has both software and hardware, although "terminal" also describes the computer/touchscreen combos. Terminals tend to be big and bulky; however, smaller, sleeker versions have recently been introduced, which are more desirable than their legacy counterparts.

Self-serve kiosks are essentially all-in-one devices. Small businesses can use a tablet POS system that has a kiosk mode setting for customers to use. This is commonly available with restaurant POS systems, but there are a few retail systems with this capability as well. 

Q: Do you need a complete POS system or specific components?

A: The short answer: It depends on your business. Very small businesses with just a few sales may only need a tablet, card reader and receipt printer. Most businesses need a card reader (or credit card terminal), a receipt printer and a way to store their cash (a cash drawer). You'll also likely need a device to register the information onto (e.g., a tablet or terminal). 

Q: Why are POS systems important?

A: The POS physically manages the cash flow of your business. If you can’t take money, you don’t have a business. The POS is integral. It needs to be reliable and accurate. It can also provide modern benefits beyond storing cash (like data and analytics).

Retail businesses may need additional components like barcode scanners, customer display screens and coin dispensers. Restaurants or bars may need kiosks, kitchen printers, scales, etc.

Skye Schooley is an Arizona native, based in New York City. She received a business communication degree from Arizona State University and spent a few years traveling internationally, before finally settling down in the greater New York City area. She currently writes for business.com and Business News Daily, primarily contributing articles about business technology and the workplace, and reviewing categories such as remote PC access software, collection agencies, background check services, web hosting, reputation management services, cloud storage, and website design software and services.
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