What Is a POS System, and How Does It Work?
POS (point-of-sale) system is the moment you’re a step away from having actual money in your hand (or on your account). Point-of-sale, otherwise known as the point of purchase, is the moment a customer decides to buy your product and pay for it. In order to truly understand what is a POS system and how does it work, we need to first grasp its basics.
Not that long ago, the point of sale was the cash register. Today’s POS systems are more evolved and are no longer limited to a cash drawer and a small screen. Although the purchase point hasn’t changed that much, the hardware and software that support it have. There are different types of POS, and they operate differently, depending on the type of store and the POS solution it uses.
What Is POS?
Modern POS systems do the same thing the old ones did — they accept payments in cash or via credit cards and issue receipts while keeping track of all purchases. Of course, those are just the bare basics. Today, POS systems are complex and have various software and hardware components — depending on the type of store you have (brick and mortar, online, or both).
POS systems do everything for you. They calculate prices of items selected for purchase (including the tax and any potential discounts), process the payment, and then update the inventory. It does everything digitally and basically on its own. But how does that work?
What Are the Key Components of POS Systems?
To figure out how a POS system works, we must first look at its components.
There are various POS solutions out there that offer a POS system as complex as you need it to be. Essentially, the software is what does everything you need to run a business. It can work independently or with the hardware.
POS software usually has an interface and a dashboard or an office. The interface is what manages and processes the transactions and what your employees will typically use while ringing up the customers’ items. Meanwhile, the back office is what will keep track of the inventory, issue reports, and generally do the analysis it’s meant to do.
Types of POS Software
The software also stores all data about transactions, customers, and the comings and goings of your business. It can do so on-site or on the cloud.
If it does it on-site, that means you’ll have an internal network with a server or a designated computer in the store that will save all the data. In such cases, the software doesn’t require an internet connection. However, you do have to update and maintain it by yourself.
Cloud based software is usually used for online stores that have no physical points of purchase. In that case, the entire system is online, and the data is stored on the cloud. This version is more accessible, as you can access your POS from any computer, as long as you have an internet connection (and the necessary login details). Also, it’s easier to maintain, as you don’t have to do it yourself (your POS provider will do it for you).
There are also hybrid POS systems that use both on-site and cloud-based software.
When it comes to hardware, some pieces are common, while others are handy add-ons that not everybody needs. The typical POS hardware is:
- Register or an interface — whether it’s an actual register or just a device that has an interface, you’ll need something to operate the software from.
- Cash drawer — if you accept cash payments, you’ll have to store the cash somewhere. That’s what the cash drawer is for.
- Barcode scanner — if your small business is a retail one, then it’s probably barcode-based, which means you’ll need a barcode reader to integrate into your system.
- Credit card reader — payments done with credit or debit cards, as well as those done via mobile wallets, all require credit card devices. They provide secure and safe cashless payments.
- Receipt printer — many businesses are required to issue a fiscal paper receipt, which is why you’ll need a receipt printer.
- Network devices — even if you go for the cloud-based software, you’ll still need a network setup that will allow you to link it up in your store.
What Does POS System Actually Do?
When it comes to software features or, in other words, what the POS system can actually do for your business, the capabilities are quite vast.
Key features of pretty much all POS systems are:
Whether it’s cash or card payment, the POS systems process the transaction and keep the consequent data. Depending on the software, the POS can accept and process cash payments, contactless payments, online payments, and magstripe or chip cards.
After the system processes a certain transaction, it records it as a part of its inventory management feature. This feature allows you to see your stock level in real-time. That way, you know whether you need to place orders for specific products or not.
POS really allows you to save time on inventory because it recognizes unique products, groups them via specific features, counts them digitally, tracks inventory levels, and can even place orders when stocks are low.
POS allows you to look at your sales numbers. It provides detailed data, not just how much money came through the register at any given point. The sales reports can be about profit percentage, sales performance, employee performance, net profit, etc.
Sales reports matter because they allow you to analyze and improve the effectiveness of your sales team (even if it’s a team of one).
The dream of every business owner is to have loyal customers who return to buy more. That’s why many have extensive loyalty programs and other incentives for repeat customers.
However, to be able to reward your loyal customer, you need to actually know they’ve done business with you before. That’s where POS comes in. It tracks customer data, such as personal info and purchase history.
It can also automatically contact clients with marketing emails (like newsletters, coupon and sales announcements, etc.). This is a highly valuable feature, as it allows you to automatize one part of the marketing process. As mentioned, return customers are what business owners cherish the most, and maintaining a relationship with them is essential. That’s why having a quick and easy way to contact them from time to time and remind them of your business is a huge benefit.
What’s more, if your POS system is really advanced, it probably has a built-in program for loyal customers with discounts and other perks always at the ready.
Another time-saving feature of POS systems is employee management that allows you to track the performance and achievements of all members of your team. The system can analyze the performance of all members, recognize the top salespeople, and even make and send out schedules.
As mentioned, issuing receipts is either mandatory or simply handy. Paper receipts make refunds and returns easier, as they are proof of the purchase.
Tipping is a common practice in specific industries. That is why most POS systems include a feature that adds a digital tip field that makes it easier for customers to tip their servers. The system also processes those tips and allocates them to appropriate employees.
Benefits of POS Systems
Some of the key benefits of POS systems are that they:
- Increase productivity — you don’t have to waste time on calculations, transactions, and data tracking, you can focus on other things.
- Reduce cost — by automatizing practically everything, you’re reducing your overall cost of business.
- Streamline operations.
- Reduce human error — to err is human, which is why we rely on software when it comes to calculations. Of course, the software can sometimes be wrong. But that happens so rarely that it practically isn’t worth mentioning.
- Provide detailed reports.
- Improve the customer experience.
Although some of these are fringe benefits, all of them will help us run a successful business. We came a long way since that first analog cash register. Today, we can enjoy the many benefits of POS systems. All we have to do is find the right one for us.
Overall, POS systems are seemingly simple but essentially complex systems that make our lives easier. If we understand them properly and use them to their full extent, they can help us develop our business. If nothing else, they make our day-to-day business easier.
Not all POS systems are the same, as we already explained. However, the beauty is that, now that you know what they are and how they work, it’s quite easy to find the one that will fit your business the best.