What is a point-of-sale system?
A point-of-sale (POS) system records the products or services a customer intends to purchase, adds up the items' cost, calculates tax, accepts various forms of payment and generates a receipt. A POS system differs from a cash register in that it has advanced features that make it easier for merchants to manage sales data, inventory, customers and employees. POS systems have three parts to them: software, hardware and a credit card processor.
What types of businesses use POS systems?
Virtually every business needs some way to accept and process customer payments, and POS systems help businesses do that (and so much more). However, the most common industries that use POS systems are customer-facing businesses like retail and restaurant establishments.
When does your business need a POS system?
As soon as you begin selling goods or services in person, your business needs a POS system, no matter how small your operation is. A POS system makes the checkout experience easier and faster for both you and your customer, reducing the time it takes to ring up a sale and decreasing human errors, such as miscalculations.
A POS system helps with inventory management, tracking the items you have in stock, and some can even assist with generating purchase orders. POS systems with advanced inventory management tools can track sales from both your e-commerce platform and your physical retail store in real time or across multiple locations.
Real-time reporting gives insight into which items are your best and worst sellers, so you can reorder popular items and offer promotions on underperforming items. It can also help you identify your busy and slow hours, days, and seasons so you can optimize how you staff your business.
What are the different types of POS systems to consider?
There are three types of POS systems. The right system for you depends on the type of business you're operating. Here are your three options:
Cloud-based POS systems: These systems are popular among merchants and restaurant owners. Cloud POS systems are easy to use, you can operate it with a tablet or mobile device, and POS companies offer different price points. Everything is stored online, which means you don't have to install the software on a server or hire an expert to maintain the service and secure it from hackers. Cloud-based POS systems tend to cost less than the other types of POS systems. However, a cloud-based POS needs the internet to operate. If you have spotty Wi-Fi, this system may not be for you.
Server-based POS systems: With server-based systems, also known as on-premises POS systems, the software is installed on a server that's located on-site. You are responsible for installing, maintaining and securing the system and backing up the data. All of this can get pricey. However, if you want total control over the POS system, then this is the system best suited for you.
Hybrid POS systems: A hybrid POS system gives you a combination of the above two types of POS systems. A hybrid POS system uses a local server, but the data is backed up to the cloud. That means that if the internet drops, there is no interruption in your business. You can continue to sell items. Once the internet connection is re-established, your data is backed up to the cloud.
What is the difference between a POS and an mPOS?
A mobile POS, or mPOS, uses a tablet or smartphone (using a card reader you can attach to the phone) as the terminal, enabling business owners to accept payments on the go. With a traditional POS system, the hardware stays put, but with a mPOS, you can take it with you. mPOS and POS systems use the same software and perform the same capabilities.
What is point-of-sale software?
POS software is the "brains" of your POS system. Most POS systems have software you install on tablets using mobile apps, as well as cloud-based software you access using a device with a web browser. POS software is designed for either retail or hospitality businesses, though some vendors offer solutions for both. Additionally, most vendors offer multiple POS plans, with service levels based either on the number of registers you need and how many people will be using the system or on the included features.
What payment methods can a POS system accept?
The payment methods you can accept using a POS system (aside from cash), depends on the credit card processing service you use. Whether you use the POS provider's in-house processing service or work with a third-party provider will determine which payment methods you can accept. Nearly all processors enable you to accept cards from all major brands: Visa, Mastercard, American Express and Discover.
As for how you can accept card payments, that depends on your card reader or credit card terminal – which may be integrated with your POS system or used alongside it. Most card readers allow you to swipe magstripe cards and are EMV compliant, so you can accept chip cards as well. Many also have NFC (near-field communication) capabilities that allow you to accept contactless payments from contactless credit cards, smartphones and wearables.
What is point-of-sale hardware?
POS hardware encompasses a range of equipment. The hardware that you purchase for your business will vary based on the type of business you run and what capabilities you want your POS system to perform.
The most common POS hardware includes the following:
- Tablet, touchscreen or computer monitor
- Cash drawer
- Credit card reader
- Receipt printer
Retail and restaurants may need additional peripherals such as:
- A barcode scanner
- A customer-facing screen
- A kitchen printer
- A kitchen display system (KDS)
- A kiosk
- A handheld POS device
- A scale
- Thermal printer paper
How many register terminals does each location require?
The number of registers, or POS terminals, that each location requires depends on the specific needs of your business. A single POS terminal may be enough for small and new businesses, but you may want to add more if your business is busy and you need to reduce wait times.
Which POS systems are the easiest to use?
POS systems on iPads or Android tablets tend to be the easiest to use, because they're designed to be intuitive, and most users are familiar and comfortable with this technology. Before you buy a POS system, sign up for a free demo to learn how to use the major features. Write a list of the features you need so you can ask the sales rep to demonstrate how to use them.
Not all POS providers offer a free trial, so you should look for a company that does. It's a big purchase, and you want to ensure that the system you choose has all the features you need and is easy to use.
What is the difference between a POS system and a payment processor?
A POS system includes both the software that runs the point-of-sale program and the hardware, or the physical machines that the POS software runs on. It's where the action happens when a customer wants to make a purchase in a physical location. A POS system is much more than a means to accept payments; it's a hub that helps businesses keep tabs on sales, customer relationships and inventory.
Payment processors are the companies that handle your customers' credit card transactions at the point of sale. The payment processor sends information from a customer's credit card or debit card to your bank and their bank to facilitate payment. If the funds are available, the transaction goes through. Payment processors also undertake fraud checks to ensure the payment and person making it are legitimate. It sounds like a lot of work, but payment processors run these checks in seconds.
What credit card processors work with POS systems?
The best POS systems integrate with multiple credit card processing services so you can shop around for the best value. However, some vendors offer their own credit card processing service and bundle it with their POS software and hardware.
If I buy a POS system, does that make me PCI compliant?
There are multiple factors involved with PCI compliance, including the POS system and credit card processing service you use, whether your business stores cardholder data, and whether your network and internet connection are secure. Your credit card processor can help you with PCI compliance; you will likely need to complete an annual PCI self-assessment questionnaire, and you may need to submit to system scans.
Which POS systems are the least expensive to integrate?
Cloud-based systems are usually the least expensive to integrate because they're plug and play – all you have to do is connect to the internet and download an app. You don't have to purchase, set up and maintain a server.
Is there a free POS system?
Yes, free POS systems are available, but there are strings attached. If you work with a credit card processing company like Square or PayPal, basic POS software is included as part of your processing service – the catch is that you must use this company as your processor, though this may not be a big deal if you were planning to use the company anyway.
Then, there are POS providers that offer free hardware, but in addition to locking you in to using their processing services, they require you to sign a three- to five-year contract. These contracts are usually noncancelable and automatically renew with a 30-day window at the end of your term.
The company may also charge you fees for your "free" equipment, like a monthly "insurance fee" or "equipment maintenance fee." When you close your account, you may find that the equipment was "free to use," and you're required to return it.
How do POS systems make money?
The companies that provide POS systems make money in different ways. Many charge their merchants for the POS software and hardware and tack on more fees for additional services. These may include a loyalty program, support for gift cards or integrations with other software. If your business requires multiple POS systems, you could be charged for each additional one.
POS companies that act as a payment processor also make money from credit card transaction fees. Even among those that don't process payments, some will tack on small per-transaction fees.
How important is reporting or analytics for a small business?
POS systems come with extensive reporting and analytics tools. That is extremely important because it can help you optimize your business, identify sales trends, and gauge how well a particular product is selling, and if you have enough inventory.
You can also use a POS system to manage and analyze your staffing and customer management. These systems can be set up to run reports on your best-performing salespeople and your most loyal customers. Reports and analytics can inform staffing, sales, and promotions, all of which are important to grow your enterprise.
What security concerns should you think about in a POS system?
Before you buy a POS system, you want to ask the company what security protocols it has in place. Ask these questions:
- How do you store my data?
- How often do you back up your servers?
- How physically secure are your servers?
- Are your card readers EMV-compliant?
Finally, check whether the POS system lets you assign unique passcodes to each user and allows you to restrict employee access. This can help your POS system play an important role in reducing theft at your business, as it records every transaction – including who was logged in to the system – and you can choose whether or not a manager must approve returns and voids. Also, look for shift reports and blind cash reconciliation, as they discourage employees from stealing from the cash drawer.
What can a restaurant automate with a POS system to alleviate staff shortages?
With staffing shortages hurting restaurant owners, an increasing number are turning to automation to help. They are using the tools built into POS systems to manage and automate inventory, create and maintain loyalty programs, and handle payroll. They use automation in the front house to manage orders, accept reservations and process payments.
How does dynamic pricing work?
Dynamic pricing occurs when a merchant changes based on supply and demand. Dynamic pricing can be driven by customer purchasing patterns, seasonality, or when demand is surging. A POS system can help determine when is the right time to raise and lower prices.