What is a Point of Sale System (POS)?

Dennis Pedersen

Dennis Pedersen

  1. Payment Processing
  2. How does POS work
  3. Types of POS
  4. Key Benefits


What is POS?

Point of sale (POS), a critical piece of a point of purchase, refers to the place where a customer executes the payment for goods or services and where sales taxes may become payable. It can be in a physical store, where POS terminals and systems are used to process card payments or a virtual sales point such as a computer or mobile electronic device.

Payment Processing

POS software should be able to handle all of your payment types or tenders, not just some of them. The common tender types include cash, credit and debit cards, gift cards, coupons, EBT payments, NFC payments, and mobile payments. Apple Pay and Samsung Pay, for instance. You’ll also want to ensure you’re able to accept both EMV (chip and pin) and magnetic stripe credit card transactions. Every tender type is not massively used. But a POS system should offer you the option to, so you have the most flexibility.

If a point of sale system has integrated payment processing, you will be able to accept all types of payments. As well as, you’ll be able to see the breakdown of the tenders. Accurate records can be obtained on ones that are reported on as liabilities, such as gift cards.

Another thing to consider with integrated processing is the rate you’ll pay per transaction. For most businesses, we recommend avoiding flat rate processing. You can often save money by choosing a processor that offers you interchange-plus rates.


How does POS work? 

POS is not a standalone machine or process. It is a constellation of things that together enable you to process customer-facing transactions efficiently. And it streamlines business processes connected with your sales.

The setup will vary in look and functionality depending on your choice of technology, what payment methods you accept, whether you print paper receipts, how you record sales and organize end-of-day bookkeeping, and the inventory systems you have in place for your products.

Modern POS systems consist of hardware and software components. The software registers, processes, and stores transaction details. But there are crucial differences in storing and using different POS software systems.


1) Hardware

Businesses will have different needs when it comes to point of sale hardware. Let’s look at some of the most important hardware components.

  • Interface/device where you register transaction details: Could, for example, be a cash register with buttons, touchscreen PC monitor or mobile device with a POS app.
  • Cash drawer: Used to store the daily takings and cash float along with cheques, vouchers, receipts and slips relevant to accounting.
  • Receipt printer: Used to print receipts for customers or end-of-day reports for cashing up.
  • Barcode scanner: Typically used in retail environments with many different products. Commonly linked with the POS system’s stock level counts so it automatically updates product counts according to items sold.
  • Card machine: Used to process payments made by debit or credit cards or mobile wallets via NFC. Traditional card machines require software installation (if not included) and SIM card or landline cable, while app-based card readers use WiFi or network data from a connected mobile device.
  • Network devices: Whether you’re relying on a cloud-based or on-premise system, you’re likely to need a network setup for an internet connection or to link up your computer system on the premises. This could be e.g. a router, modem or hub connecting several local computers.


2) Software

All modern POS systems have a frontend interface for the point of sale and a backend (sometimes called ‘back office’ or ‘dashboard’) side for behind-the-scenes analytics and management functions.

The staff processing the transactions use the frontend interface, normally on a touchscreen monitor or tablet screen. Whereas the backend is independently accessible in a browser or application window. And it can be done either on the same device or a separate device.

Those two connects and syncs, regardless of the POS software. But there are two ways to store the data: On-site and Cloud-based.

Earlier, on-site POS software has been the benchmark for computerized POS systems. But it is now more common to use cloud-based or hybrid systems relying on both the internet and local hosting. On-site POS software tends to be expensive to set up, often requiring professional assistance and maintenance. Cloud-based systems gravitate to be cheaper and with more options to integrate with other software programs. Each business sector has its own needs that specialized POS applications accommodate for.


3 Type of POS Systems

The nature of your business will determine the right POS system for your commerce. POS systems are available according to the needs of the organization; From simple processors to complex cloud systems depending on the type (physical or online) and size (small, medium and large enterprises). They are generally classified into 3 types.


1) Mobile POS

A Mobile POS system or mPOS uses an electronic device such as a smartphone, tablet, or other mobile devices as a terminal. A credit card reader should be able to attach to the terminal. It is highly portable and allows you to attach other peripheral devices such as barcode scanners and receipt printers.

mPOS systems are used to process payments. And it may have other capabilities such as inventory management, loyalty programs, sales monitoring, reporting and much more.

These systems are best suited for small businesses. mPOS systems don’t take up too much space; as well as remarkably affordable and convenient.


2) Terminal POS

A terminal POS is a software/hardware based system that carries add-on segments such as barcode scanners, credit card readers, receipt printers and cash drawers.

These systems have extensive capabilities including inventory management, reporting, and analytics, payment receipts via email, CRM and customer loyalty programs.

They are suitable for retail stores that have cash dedicated cash wraps. Their progressive functionalities and reasonable prices make them widely preferred. Businesses such as restaurants, grocery stores, boutiques, book or magazine stores, salons, and electronic stores prefer terminal POS.


3) Cloud POS

A cloud POS is an online or web-based POS that you can easily use with your existing hardware such as a computer, tablet, and printer.

These systems have all the functionalities of a terminal POS. The only difference is that a cloud POS system is installed in data centers that are maintained by the POS vendor. Instead of being installed on a server run by you.

They are suitable for all types of businesses; Especially startups because of their tangible benefits in cost, simplicity, flexibility, and function.


5 factors to consider when getting a POS System

Here are a few key features that you should look at while getting a POS system.


1) Billing and order processing

A point of sale system must have the basic functionality of billing and order processing. It should be able to bill orders by scanning items and capturing different payment modes.

It has the capability to generate order invoice, reprint and email to end customer; Along with adding the discount, customer details, additional remarks and salesman’s name to an order.


2) Inventory and stock management

A POS system’s inventory management module must provide complete visibility and accountability at store level at all times.

The system should provide a view of lot-wise inventory, SKU transaction history about ‘in’, ‘out’ and ‘within’ movements of any SKU, and inbound and outbound inventory.

It should be able to make stock adjustments i.e. increase or decrease stock while viewing inventory and capture the reason for stock adjustments.


3) Sales monitoring and reporting

The point of sale system must be able to generate a robust report on sales results. It should be able to report hourly, daily, weekly, monthly and yearly takings and outgoings. So that the merchants can easily understand the overall success of their business.

Sales trends such as seasonal demand in products, forecast on the basis of sales trends, insights on unnecessary product overspend and information relating to stock management are some of the features of an advanced POS reporting module.


4) Cross channel returns management

Accepting cross-channel returns and facilitating refunds and replacements from any store location are some of the functionalities of a POS returns management module.

The system should facilitate the creation of multiple returns for one sales order at different time intervals. It should capture details like the reason for the return, salesperson’s name, and remarks.


5) Customer relationship and experience

A point of sale system can help you retain your customers by storing customer data and purchase history. You can use this to provide a personalized experience to your customers.

Customer data is highly useful for advertising. Because this data can provide insights on which customer would be interested in your sale.

However, POS systems are designed to be user-friendly, with the sole purpose of making life easier and business better. They allow you to focus attention on the customer, as well as the physical preparation and sale of products; building the most important values of retail.

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Dennis Pedersen
CEO & Founder of PayFasto. I have achieved a long time dream of helping advertisers with getting the processing setup they always wanted! This is something i wanted when i had my own offers.
Dennis Pedersen
CEO & Founder of PayFasto. I have achieved a long time dream of helping advertisers with getting the processing setup they always wanted! This is something i wanted when i had my own offers.


CEO & Founder of PayFasto. I have achieved a long time dream of helping advertisers with getting the processing setup they always wanted! This is something i wanted when i had my own offers.