What Is a POS System? Ultimate Small Business Guide
This article is part of a larger series on POS Systems.
A point-of-sale (POS) system is the retail software and hardware that manage purchases, returns, and exchange transactions. The best ones also include inventory management, customer relationship management (CRM), analytics, and other functions. While typically located at your cash wrap, a POS system can also be mobile for curbside, click-and-collect orders, or sales floor transactions or virtual on ecommerce sites.
Here’s everything you need to know about POS systems—from how they work to what they can (and should) include to how you can choose one that’s right for your small business.
Want to learn about the best point-of-sale systems? See our breakdown of the best POS systems for small businesses. You can also check out Square, our best overall and best free recommendation.
POS System Functionality
POS systems use software to process transactions. When a customer makes their product selections, you can use your POS system to scan the items via a QR code or barcode, ring up the total, and then process their payment method and print a receipt. That’s basically how a POS system works.
Modern POS systems, however, can do so much more than process transactions. As we will explore in the next section on features, POS systems also work behind the scenes to help update on-hand inventory levels, track customer data, aid in your marketing efforts, provide report insights, and more.
Another thing to note about modern POS systems is that instead of the clunky electronic cash registers of the past, some systems are cloud-based. This means that they can operate on tablets, computers, and smartphones either via your internet-accessible account or an app.
Basically, POS systems can work wherever your customers are—making it quick and easy to accept payments as long as you have a stable internet connection. Some also accommodate offline payments, so you don’t even need a connection.
It’s generally simple to figure out how to use POS systems—with user-friendly interfaces that are often customizable, plus training tools, you and your staff will be able to learn the ins and outs of POS transactions.
Types of POS Systems
Before getting into the nitty-gritty of POS features, let’s first look at the types of POS systems you have to choose from.
Below you can see a brief overview of the different kinds of POS systems on the market and you can read more with our full article on Types of POS Systems: A Guide for Small Businesses.
Types of POS Systems
Small businesses with limited budgets wanting a flexible and portable POS
Mobile POS Systems
Traveling vendors or retailers wanting to process transactions on the sales floor
Touch-Screen POS Systems
Businesses wanting to speed up the ordering and checkout process
Cloud POS Systems
Businesses wanting to access reports and POS data from anywhere
Open-source POS Systems
Businesses with abundant technical resources to create and maintain a custom system
Multichannel POS Systems
Retailers who sell online and in person and need to sync stock levels
Self-service Kiosk POS Systems
Quick-service restaurants and casual food businesses with self-checkout
POS System Features
Below we discuss some of the key features you can expect to find in POS systems. Of course, some systems will have more limited features, while others will have specialized features—such as table mapping and menu management for food-based businesses, for example.
A good POS system will create a quick and frictionless checkout experience for you and your customers. When you ring up sales, you should also get options to add coupons, loyalty points, or other discounts, plus options for processing returns and refunds, issuing store credit, and creating gift cards at the touch of a button.
The checkout process is also a perfect time to gather information for customer relationship management (CRM). In short, POS systems can help:
- Collect general customer contact information
- Create customer profiles to store purchase history
- Collect signups for email marketing newsletters and promotions
- Enroll customers in loyalty programs
Some of the most user-friendly checkout dashboards are app-based and run from a tablet device. Square is our top choice for the best touch-screen POS system for small businesses.
Credit card terminals issue charge reports and reconcile tickets to sales. With POS systems, this feature is included—making your end-of-day simple and quick. The biggest thing you should be looking for in a POS card terminal is that it supports flexible payment options. This means accepting swipe, tap, EMV chips, and contactless methods like Apple Pay.
You should also look for mobile card terminals if you want to conduct mobile sales. Look for encryption methods that securely connect card readers to smartphones and tablets for mobile sales, enable you to accept online payments via your website, and enter phoned-in payments using your POS system’s virtual terminal.
The last piece of the puzzle here is the payment processor or the software that actually charges the card and gets you funds. Some POS systems, like Square, have in-house payment processors included with your POS account. Others, however, require that you integrate your POS system with a third-party payment processor.
If you need a payment processor, check out our breakdown of the top options on the market for both restaurants and retailers.
Inventory management features are one of the top reasons businesses adopt a POS system. These features help track your stock and make sure that you have the right amount of inventory on hand at all times. Square offers the basic inventory tools most retailers need, but if you are looking for a more complex inventory management system in your POS, Lightspeed will be your best bet. (Both are included in our guide linked below.)
When looking at inventory management systems, you should consider how the software lets you organize your products. Most POS systems let you create SKU numbers and store key product data, such as:
- Supplier information
- Wholesale cost (regular, sale, and discount prices for items)
- Variables (size or color)
- Current stock quantities
Retail POS systems will often have features to create and print barcodes and shipping labels, as well as track orders for curbside pickup. The best POS systems also offer advanced inventory features that help you manage purchase orders, forecast product demands, store vendor information, track perishable goods, and see segmented performance reviews. If you need to track inventory anywhere, a POS will improve the process.
Many POS systems have robust inventory systems already built in. Check out our guide to the top POS inventory management systems.
Tracking customer contact info, purchases, totals, payment methods, and returns isn’t only helpful in overall sales—but also in targeted marketing campaigns. When you know who purchases what, who frequents your store the most, and who the big spenders are, your marketing efforts can be much more successful.
Leverage your CRM data to foster loyalty with a customer loyalty program. Some POS systems, like Square, even have in-house loyalty programs already integrated into their POS plans, but most will require a third-party loyalty program software.
Some POS systems will come with built-in marketing tools, like SMS/email outreach or social media integrations. You should consider whether these tools are important to you and your business and which marketing strategies you will use when selecting a POS.
Email marketing campaigns are among the most popular marketing tools within POS systems, as they build and manage your email contact list for you and can distribute messages in bulk. When you’re ready to send marketing emails with promotions, you can use your customers’ order histories to target those most likely to respond.
With POS systems, tying your order history to email campaigns helps you create far more effective ones. Some also offer solutions for selling on social media platforms, like Facebook and Instagram, and integrated loyalty and referral programs.
POS systems offer a variety of employee management tools, too, with features for time tracking, scheduling, commissions, internal reward programs, permissions, and more.
Some systems also allow you to access or integrate complete payroll management, so your time tracking and payroll tools are in one automated system. There are systems that offer this feature directly, while others offer it through third-party integrations.
POS systems always come with a reporting dashboard where you can view reports on things like your sales, inventory, staff performance, and loyalty program. Some programs will even offer report insights and suggestions based on the findings. The goal of POS reporting is to give businesses better insights into their performance so that they can make informed, qualitative decisions and improve the efficacy of their business.
At the most basic, POS systems should track every sale in detail, tell you which items are low, which items are top sellers and slow movers, and how long an item has been on the shelf. Sales tracking also helps you pinpoint and predict seasonal upticks in certain categories or overall sales so you can plan your inventory and staffing to meet your busy cycles.
Want to learn more about retail data analysis and what metrics you should care about? Check out our guide to Using Retail Analytics & Top Retail Metrics to Drive Sales.
A POS system that offers multichannel sales can connect your in-store, online, social, and multilocation activities in one convenient, centralized system.
Most POS systems integrate with many online sales platforms or offer one in-house. This integration will sync your sales, payments, customers, and even inventory counts between the in-store system and online sales channels onto your POS dashboard.
Square’s POS is free for any single location and comes with an online store. The system, however, can manage as many locations as you need at a low monthly rate.
In addition to great system software, brick-and-mortar small businesses would also need POS hardware. If you look at the graphic below, you will see the hardware and accessories that you can acquire.
In the following section, we will take a look at the hardware options you can choose from:
Most registers are now in the form of a desktop computer (with a monitor), but many businesses still use simple cash registers. Cash registers are typically handy for those who only need the bare minimum, as they already come with cash drawers and no other bells or whistles.
A device like a tablet or a smartphone can easily take the place of a desktop computer. Tablets can also be used with a stand for ease of use.
Cash drawers aren’t just a safe space for cash, but can be a great place to organize and keep card payment receipts.
These days, receipts can be emailed, printed, or neither. Receipt printers give you the ability to provide preferred options for your customers and also help you have resources for your own sales tracking and management.
Barcode scanners not only help streamline the checkout process, but they can also provide your small business the ability to manage and track prices and stock levels. Some POS systems, like Lightspeed, even include a barcode scanning app that turns any device camera into a scanner for inventory counts or running up transactions.
Most modern POS software are cloud-based, so you can run them on any internet-enabled device. Then, all you need is a credit card reader. Learn more about cloud POS, card readers, and accessories with our guide to POS hardware.
How to Choose a POS System
When searching for the best POS system for your small business, you should identify which features you need—both today and in the future. This will largely depend on the industry you are in, the number of transactions you perform, and the tools you need to support your workflow. Also consider functionality, cost, ease of use, card processing, and more.
Take the quiz below to get matched with a buyer’s guide full of specialized solutions for your business, and read through the sections below to get an overview of all the factors to consider.
Let’s take a closer look at the areas you should consider:
Keep in mind that the specific features your POS will include depends on the platform you choose and the plan you sign up for.
Click through the graphics below to see just what tools you should be looking for in your POS system based on your specific industry, or check out these guides for more on the top POS systems by industry:
There are a few things you should be aware of when weighing POS prices, including monthly subscription fees, setup costs, payment processing fees, and hardware costs. You can use our guide on how much you should pay for a POS system to see if you are getting a good value for the price.
The best POS systems offer interest-free financing or installment payment plans on hardware and have multiple software pricing plans, so you can start with an affordable option and upgrade as your business grows.
Having the ability to streamline your transactions for both you and your customer doesn’t have to come with a hefty price tag, however. Many POS software, including one of our most recommended—Square—come with free plans.
Square is our top pick for free POS systems for small businesses. Read more about our top pick for the best free POS systems.
Choose a POS system that includes either built-in payment processing, like Square, or integrates with popular payment processors.
If you are an established business looking to switch to a POS system from a cash register, you may need to switch payment processors. However, many systems are willing to negotiate processing rates for businesses over a certain volume. When testing different systems, ask if they can match or beat your current rates.
Some systems run on generic hardware like iPads or Android tablets, while others function on proprietary hardware systems. Proprietary POS hardware can be more durable; however, it can’t be repurposed if you change systems down the line.
Always read user reviews before making a final decision. And, if possible, talk to business owners in your area to get their first-hand accounts.
Benefits of POS Systems
POS systems are designed to save you time and increase productivity.
- Saves time: Whether you’re the owner or associate, POS systems help save time when it comes to managerial tasks and the checkout process.
- Offers insights: POS systems provide a wealth of data about your customers—which helps you make better decisions regarding your inventory, marketing, goals, and processes.
- Scales with your business: Typically, POS software will always come with timely updates that help you stay ahead of the curve as technology inevitably evolves.
- Automates the less fun stuff: From inventory management to employee scheduling, POS systems handle this work for you so you can focus on your more important to-do’s.
- Increases accuracy: When you don’t have to enter transactions manually, the room for error gets smaller.
- Provides flexible payment options: Since most POS systems come with regular updates, your small business can offer the latest and greatest payment methods. A study by the Federal Reserve shows the steady decline of cash and check payments alongside a rise in debit, credit, and electronic payments.
- Make better decisions: You can use the data and information that your POS gathers to make better-informed more-qualitative decisions.
Learn more about the benefits of using a POS system in our guide.
POS Systems Frequently Asked Questions (FAQs)
The price of a POS system is usually a monthly subscription fee that can vary from free to hundreds of dollars per month. The cost of your POS will vary based on features, number of locations, and the overall size and complexity of your business, but the typical range for a single retail location is $0 to $200 per month.
A POS system will typically include an online portal where you can process transactions, manage inventory, keep track of customers, and run reports. Additionally, you might also acquire hardware, like a display unit, card reader, and cash drawer. These are typically an additional cost, though.
The most common types of POS systems are cloud-based, mobile, app-based, open-source, multichannel, and self-service.
The benefits of using a POS system to manage your retail store include saving time by automating many tasks, offering insights through reports, supporting you as you grow by managing your additional sales channels, increasing accuracy and decision-making, and providing flexible payment options to your customers.
POS systems are a must for small businesses, as they help streamline purchases, connect sales data to marketing efforts, provide flexibility to customers, manage product inventory, and provide tools to help manage your staff.
Our overall pick for POS systems for small businesses is Square. It is easy to use, affordable, loaded with tools, and can support you as you grow. Visit Square today and sign up for a free account.