What Is a POS System and How Does It Work?

What is a pos system?

How do POS systems work? Find out everything and more with our detailed guide…

What Is a POS System?

A POS (point of sale) is what businesses use to process transactions. Combining software and hardware, modern POS systems allow you to manage different aspects of your business, from taking payments to managing your inventory and staff.

In the past, businesses would use cash registers and log each sale manually, or use an on-site software installed on the company’s servers. Nowadays, most POS systems use the cloud to store data, meaning you can manage multiple store locations from one POS system, and access the software from any location.

Hardware for a POS System

The best POS systems come with a wide range of hardware to help you take payments and interact with customers. The most common types of hardware are:

POS Touchscreen Display or Tablet

Most POS systems use iPads, Android tablets, or generic touchscreens to display the software’s main interface. Typically compact and user-friendly, these devices are simple to use and look far more stylish than traditional monitors.

Barcode Scanner

Barcode scanners read an item’s barcode and send its details to the POS system, typically displaying the item’s price and product information. You can also use barcode scanners to double-check prices or view stock levels for different items.

Cash Drawer

Cash drawers keep your cash safe. Even if your business accepts contactless and digital wallet payments, it’s likely you’ll need somewhere to store your cash. POS systems can be synced to your cash drawer to ensure the drawer only opens during a transaction. You can also keep track of every time the drawer opens, making it easy for you to detect fraud.

Receipt Printer

These devices print paper receipts, otherwise known as proofs of purchase. Receipts must display what the customer bought from your business, when they bought it, and how much they paid.

Credit Card Terminal

Also known as a credit card reader, terminals are used to process in-store credit card transactions, whether through contactless payments, chip and pin, or a magnetic stripe card. These days, we strongly recommend buying a credit card terminal that accepts all three.

POS Features

POS systems do more than just take payments. In fact, you can think of yours as an all-in-one retail management system, or restaurant management system if that’s your industry. The most common POS features are:

Sales Reporting

It shouldn’t come as a surprise that point of sale systems gather data about your, well, sales. You can access this data and generate reports to help you understand how your business is performing. The best retail POS systems will typically provide these reports:

  • Total sales volume
  • Gross profits
  • Best and worst selling days
  • Highest or lowest performing products

Inventory Management

Rather than manually counting items on your shelves or within your ecommerce store’s back end, you can let your POS system do it for you automatically with features such as:

  • Expected stock vs actual stock levels – identifies instances of theft or logistical issues during stock takes
  • Dead stock alerts – identifies non-selling items to prevent over-ordering stock and maximise profits
  • Recurring orders – automates recurring orders for your most popular items

Staff Management

Don’t think of staff management features as keeping eagle eyes on your team. Instead, use the information generated from your POS – such as employee sales performance figures or average tip amounts – to offer incentives and rewards.

Or, use this information to identify staff who might need extra training. Staff management features are designed to help you get the most out of your team. Of course, you can also view staff hours and keep track of schedules.

Customer Relationship Management (CRM)

Gaining new customers is crucial to growing your business. However, repeat customers are the holy grail. This is because they typically spend far more than first-time buyers. With CRM features, your POS system can help you:

  • Analyze shopping habits – send personalized marketing messages to encourage repeat visits or purchases
  • Identify repeat customers – use this information to build a customer loyalty program
  • Follow up on lost sales – Send abandoned cart emails to encourage customers to finalise purchases and recapture lost sales

How a POS System Works

As we mentioned earlier, POS systems offer many different functions to help you run your business more efficiently. But how does a POS system work? Well, it combines a software interface with items of hardware. Information is passed between these items via the cloud, where all the resulting customer data is stored.

To demonstrate what POS systems can do, we’ve explained some of the main POS functions below…

Inventory Management

A POS system is like an inventory library. From the main interface, you can keep track of stock levels, generate stock reports, and even reorder items. On some systems, you can set up automated re-ordering for when certain stock levels are low.

Staff Management

Today’s cloud POS systems can double up as HR and payments solutions, helping you manage staff more effectively. These systems can accurately track your staff’s working hours, schedule different shifts, and carry out start-and-end cash counts to help prevent fraud. POS systems have also turned employee training into a breeze thanks to their intuitive and user-friendly software.

Multi-Store Management

These days, businesses with multiple locations need a unified POS system that makes it possible to manage them all from one interface. Through the cloud, you can access your POS software and view information – such as stock levels, sales reports, and staff hours – for all your different locations from anywhere with an internet connection.

Integrated Payment Processing

Payment processors, such as Square, PayPal and Stripe, handle the exchanges between customers and your business. Rather than adding records to your sales book or cash register, you can let an integrated payment processor and POS system do it all for you, in one place. Whenever a customer makes a purchase, the transactional data automatically goes to your POS system, allowing you to view sales figures and generate reports quickly and easily.

POS CRM Database

Integrating CRM software with your POS system means you can access all your customer data – e.g. their purchasing history – in one place. With this customer database, you can improve the customer experience by sending personalized marketing campaigns and promotions, or upsell relevant products or services to different customers.

Sync Front and Back End systems

Uniting your POS with back end systems such as your supply chain or merchandising software is another way to boost efficiency. For instance, you can automate food, beverage, or stock orders so you never run the risk of displaying items on your menu that are actually out of stock. For retail stores, this means you don’t need to worry about calling up your supply chain and reordering bulk items.

Installation of a POS System

The best POS systems make this very simple. They normally come as ready-out-the-box solutions with the hardware already charged and the software installed – if you’re using the POS company’s hardware, that is.

If you’re using your own pre-existing tablet and card reader, then you’ll simply need to follow the POS supplier’s instructions for installing the software. Typically, this involves downloading the software onto your chosen devices and connecting your handheld devices. Once that’s done, you should perform a test by scanning an item to see if the software recognizes the item’s description and price.

Mobile POS Systems

Mobile POS, or mPOS, is a portable point of sale system used on mobile devices like smartphones and tablets. These flexible systems are ideal for mobile businesses that need to take payments on the go, such as food trucks, home and repair services, market sellers, and pop-up stores. Mobile POS systems can also be taken around restaurants for tableside ordering.

With the best mobile POS systems, you can access your company’s primary POS system from your chosen mobile device from anywhere with an internet connection. That said, most POS systems have an offline mode that allows you to take payments without wifi or internet coverage.

Mobile POS System
Mobile or handheld POS systems allow you to make sales on the go

Expert Verdict

What is a POS system? To summarize, it’s a combination of hardware and software designed to help you manage your business more efficiently. These systems enable you to take payments first and foremost, but they can also help you communicate with customers and manage your staff and inventory.

You can also use POS systems purely in-store, or integrate one with your ecommerce website in order to maximize your sales volume. You can even use mobile POS systems to help you make sales on the go – ideal for food trucks or pop-up stores. Just think of POS systems as your most valuable business partner yet.

Written by:
Dan’s a Senior Writer at Expert Market, specialising in digital marketing, web design, and photocopiers, amongst other topics.
Reviewed by:
Ruairi uses his 3+ years of research experience to uncover insights which can help Expert Market provide the best business solutions for their users. He has done this by meeting with business owners to find out what is important to them and what challenges they face on a daily basis. Ruairi specialises in tools that can be used to grow your business and has done research for a wide range of categories on Expert Market, such as EPOS, Website Builders, and Merchant Accounts.