The point of sale system has come a long way in the past few decades. Rather than acting as a simple till or a basic cash register, points of sale make business owners’ lives easier in numerous ways.
But with these new tools and technology comes a learning curve with the software and terminology. So, let’s cover some basics – What is a POS system? What are the main components? What is the point of sale system definition? What are POS transactions? This blog will answer each of these questions and more. Read on to learn more.
Key Takeaways: What Is a POS System?
- POS systems streamline transactions, manage inventory, and track purchases over time.
- The hardware components of a POS system include terminals, card readers, printers, and barcode scanners.
- Transaction processing in a POS system involves initiating the transaction, item recognition, pricing, payment processing, receipt generation, inventory management, and reporting.
- Compared to traditional cash registers, POS systems offer enhanced efficiency, customer insights, integration capabilities, and enhanced security.
What Is a POS System?
A POS or point of sale typically refers to the area or machine where a transaction occurs.
You might also see it called the point of purchase or the checkout area. It’s the last step in the customer shopping experience and should be convenient, aesthetically pleasing, and leave each shopper satisfied.
A POS system is, more specifically, the tools that facilitate each transaction. The point of sale system serves as the heart of all business operations. It processes transactions, handles inventory management, and is the point of most communication between shoppers and employees. Using both hardware and software, a modern POS system offers businesses many operational features.
Speak with a product specialist and learn what KORONA POS can do for your business.
How Does a POS System Work?
A POS system is vital for businesses to process transactions efficiently. Here’s how it works, broken down into key bullet points:
- Transaction Initiation:
- Cashier or customer selects items for purchase
- Items are scanned or manually entered into the POS system
- Item Recognition and Pricing:
- POS system identifies each item based on its barcode or entered SKU
- Prices are retrieved from the system’s database or programmed into the system
- Calculation of Total Cost:
- The POS system calculates the total cost based on the prices of selected items
- It may apply for discounts, taxes, or promotions as programmed
- Payment Processing:
- Customer chooses a payment method (cash, credit card, debit card, etc.)
- POS system processes the payment securely, often integrating with payment gateways or card readers
- Receipt Generation:
- The system generates a receipt detailing the purchased items, prices, taxes, and payment method
- Receipts can be printed, emailed, or sent via text based on customer preference
- Inventory Management:
- The POS system updates inventory levels in real-time as items are sold
- It can provide alerts for low stock and generate purchase orders for replenishment
- Reporting and Analytics:
- The POS system compiles transaction data for reporting and analysis purposes
- Business owners can track sales, trends, and performance metrics to inform decision-making
- Customer Management:
- The purchase information is stored for that customer’s profile
- This information can be used for future suggestive selling, loyalty and rewards, or targeted marketing efforts
A POS system streamlines the entire sales process, from item selection to payment and beyond, while providing valuable business management insights.
POS Hardware
The right POS hardware is essential to facilitating a speedy checkout. Popular components include:
- Terminals:
- Primary devices where transactions are processed
- Typically include a screen, input device (keyboard or touchscreen), and processing unit
- Can be a stationary countertop or mobile for flexibility in different business settings
- Credit/Debit Card Readers:
- Devices that read payment cards’ magnetic stripes or chip information
- Enable secure processing of card payments
- Often integrated into the POS terminal or available as standalone units
- Display Screens (Customers/Self-Ordering):
- Customer-facing screens for viewing items, prices, and promotions during checkout
- Self-ordering screens for customers to select items and customize orders in restaurants or retail environments
- Enhance customer experience and streamline ordering processes
- Printers:
- Receipt printers for generating transaction receipts
- Kitchen printers for printing order tickets in restaurants
- Barcode printers for printing labels for inventory management
- Used to provide documentation for transactions and streamline operations
- Scanners:
- Barcode scanners for quickly scanning item codes during checkout
- Can be handheld or built into the POS terminal
- Improve efficiency and accuracy in item entry and inventory management
- Cash Drawers:
- Secure compartments for storing cash and coins during transactions
- Connected to the POS terminal and only accessible through authorized actions
- Essential for cash transactions and cash management
- Keyboards/Touchscreens:
- Input devices for entering item codes, quantities, or other transaction details
- Touchscreens offer intuitive interfaces for more straightforward navigation
- Enable interaction with the POS system for transaction processing
- Customer Displays:
- Secondary screens facing customers to view transaction details and totals
- Provide transparency and enhance trust during the checkout process
- Can display promotional messages or advertisements to engage customers
POS Software
Just as crucial as the hardware components is the software that you run. Modern POS software typically offers the following:
- User Interface:
- Intuitive interface for easy navigation and operation by cashiers
- Clear layout for item selection, payment processing, and other functions
- Inventory Management:
- Track stock levels in real-time
- Receive alerts for low stock and generate purchase orders
- Organize inventory by categories, attributes, or SKUs for efficient management
- Sales Reporting and Analytics:
- Generate reports on sales performance, trends, and inventory turnover
- Analyze data to identify best-selling items, peak sales periods, and customer preferences
- Facilitate informed decision-making for pricing, promotions, and inventory management
- Transaction Processing:
- Process various payment methods, including cash, credit/debit, mobile, and gift cards
- Calculate totals, apply discounts and taxes, and handle refunds accurately
- Ensure secure payment processing and compliance with payment industry standards
- Customer Relationship Management (CRM):
- Capture customer information and purchase history for targeted marketing campaigns
- Loyalty program integration to reward repeat customers and encourage retention
- Personalize customer experiences through tailored promotions and offers
- Integration Capabilities:
- Integrate with other business systems such as accounting software, eCommerce, and loyalty programs
- Seamless data flow between different systems for streamlined operations and accurate reporting
- Customization Options:
- Tailor settings, menus, and workflows to suit specific business needs
- Configure tax rates, discounts, and pricing rules according to regional requirements or promotional strategies
- Security Features:
- Implement user authentication and permission levels to control access to sensitive functions
- Encrypt sensitive data such as payment information to safeguard against retail fraud or theft
- Regular updates and patches to address security vulnerabilities and ensure compliance with industry regulations
- Cloud-Based Deployment:
- Access the POS system remotely from any location with internet connectivity
- Cloud-based POS systems enable scalability to accommodate business growth without hardware limitations
- Automatic backups and data synchronization across devices for data integrity and disaster recovery
Costs of a POS System
Costs associated with a POS system can vary based on several factors, including the type of business, scale of operations, and specific requirements. Here’s an overview of the typical costs broken down into hardware, software, and payment processors:
Hardware:
- Initial hardware investment includes terminals, tablets, barcode scanners, receipt printers, and cash drawers.
- Depending on the brand and features, costs can range from a few hundred to several thousand dollars per terminal.
- Additional expenses may include accessories like stands, mounts, and cables.
Software:
- Software costs are typically recurring monthly fees or one-time licenses.
- Subscription-based models (SaaS) usually range from $50 to $200 per month per terminal, depending on the complexity of features and support offered.
- Customizable or enterprise-level solutions may have higher upfront costs or bespoke pricing structures.
Payment Processors and Costs:
- Transaction fees are a significant component, typically ranging from 2% to 4% of each transaction’s value.
- Some processors charge additional flat fees per transaction or a monthly service fee.
- Consideration should be given to potential penalties or fees for chargebacks or early contract termination.
While POS systems can streamline operations and improve efficiency, it’s essential to factor in these costs to determine the system’s overall affordability and suitability for the business.
Benefits of a POS System
Implementing a point of sale system offers numerous benefits for businesses of all sizes. Here are some key advantages:
- Enhanced Efficiency: Streamlines sales processes, reducing checkout times and minimizing errors
- Inventory Management: Enables real-time tracking of stock levels for more timely reordering and reducing instances of stockouts or overstocking
- Detailed Reporting: Generates comprehensive reports on sales, inventory, and customer behavior to aid businesses with merchandising and marketing
- Customer Insights: Captures valuable purchasing patterns and preferences data to provide targeted marketing campaigns and personalized customer experiences
- Integration Capabilities: Seamlessly integrates with other business systems such as accounting software, eCommerce platforms, and customer relationship management (CRM) tools
- Improved Security: Safeguarding sensitive customer information and reducing the risk of fraud through encryption and compliance with Payment Card Industry Data Security Standard (PCI DSS) regulations
KORONA POS has exceeded my expectations in every way. It’s a powerful, adaptable solution that has transformed our operations for the better.
-James B.
POS System vs. Cash Register
Comparing a POS system with a traditional cash register highlights significant differences in functionality and benefits:
Cash Register:
- Simplicity: Basic functionality for cash transactions
- Cost-Effectiveness: Initial setup costs are lower than POS systems, making them suitable for some small businesses with more straightforward needs
- Limited Features: Lacks advanced features such as inventory tracking and detailed reporting, limiting insights into business operations
- Manual Processes: Relies on manual entry for transaction details, increasing potential errors and inefficiencies
- No Integration: Typically operates independently, with no integration capabilities with other business systems
Types of businesses that may use a cash register:
- Street Food Vendors: Street food vendors or chefs starting food trucks often operate in mobile or temporary locations where setting up a complete POS system may not be feasible. These businesses may choose to deal with cash transactions only.
- Flea Market Stalls: Businesses operating in flea markets or temporary retail spaces may opt for cash registers due to their simplicity and ease of use. These businesses often have short-term leases and limited resources, making a cash register a cost-effective option.
- Dive Bars: Many laid-back bars focus on serving drinks rather than complex transactions. These establishments may opt for a simple cash register for its ease of use and minimal setup requirements.
POS System:
- Versatility: Offers advanced features such as inventory management, sales reporting, and integration with other business systems
- Efficiency: Streamlines operations with barcode scanning, touchscreen interfaces, and automated processes, reducing errors and enhancing productivity
- Customer Insights: Captures valuable purchasing patterns and preferences data, enabling targeted marketing strategies and personalized customer experiences
- Scalability: Adaptable to the needs of growing businesses, with the ability to add terminals and second locations, or integrate additional features as required
- Enhanced Security: Utilizes encryption and compliance measures to protect sensitive transaction data, reducing the risk of fraud
Types of businesses that may use a POS system:
- Quick Service Restaurants: Fast food establishments deal with high transaction volumes and complex menu items. Entrepreneurs opening a QSR will require sophisticated POS systems to manage orders, process payments, and track inventory in real time.
- Retail Stores: Many retail businesses have diverse product lines and benefit from POS systems that offer inventory management and sales reporting capabilities. A complete POS system allows for accurate tracking of stock levels, seamless checkout experiences, and data-driven insights.
- Coffee Shops: Coffee shops often have customizable orders, multiple payment options, and non-stop customer interactions. Thus, a complete coffee shop POS system is essential for managing transactions effectively.
FAQs: What is a POS?
- How Is a POS Purchase or POS Transaction Completed?
A point of sale (POS) purchase or transaction is typically initiated by the customer presenting their chosen items to the cashier at the checkout counter. The cashier then scans each item’s barcode, or manually enters the item’s details, into the POS system. Finally, the customer pays for their selected items using a payment method accepted by the store, such as cash, credit/debit card, or mobile payment, and receives a receipt confirming the transaction.
First, business owners must accept EMV cards. These cards use chips to provide more secure transactions. The chips carry dynamic bank information, meaning the codes are encrypted and change often.
For nearly all types of businesses, accepting EMV cards protects you against possible fraud. U.S. law states that the company, not the bank, is responsible for any swiped fraudulent transaction.
Secondly, mobile payments are now an essential feature of modern POS systems. These types of payments are often done from smartphones. More and more consumers are expecting the convenience of this option.
Your POS system should come with analytics and reporting capabilities, such as ABC analysis, which allow you to make sound business decisions on your product. These can break down large amounts of data into more accessible takeaways.
The portal to this information is often called the “back-end.” The name comes from legacy systems in which you would have to go to the back of your store to the central computer. For cloud systems, this means accessing information that is not visible to the cashier or customer.
Final Thoughts
We hope that covers almost all your POS system’s essential components and terminology. A great point of sale can be an integral part of your business, so knowing what you’re shopping for and what to expect is essential. To find out more, drop us a line. Our team is here to answer any questions you might still have. Click below to learn more.
