Point-of-sale (POS) systems help businesses accept and process payments as well as manage most aspects of operations, such as orders, inventory, employees, customer engagement, scheduling, and reporting. This guide will walk you through what you need to know about POS systems and how to choose the right one for your business.
What is a point-of-sale system?
While the earliest cash registers trace back to shortly after the Civil War, the last few decades have seen a rapid evolution in financial services and business management technologies. POS systems can do more today than could have been imagined just 20 years ago.
What does a POS system do? The primary function of a POS system is to process credit and debit card payments, as well as record cash and check payments. These systems also track sales and can generate reports to help you better understand trends and peak sales periods. In addition, nearly every POS uses your transaction data to help manage your inventory, letting you know when you’re running low.
Depending on which system you select, you may have access to a number of additional tools. For example, your POS system can help you with staff scheduling, online order management, customer engagement including loyalty programs and targeted promotions, and even games. While your POS might not be able to control room temperature or play your favorite music (at least, not yet), it can help you be more efficient in nearly every aspect of managing your business.
How does a POS system work?
Although POS systems come in many shapes and sizes, one of their primary functions is the ability to complete sales transactions and accept payments.
The process typically looks like this:
1. Checking out: The shopper brings the items to the designated checkout counter or area within the store. The cashier can either look up the item in the POS system by category, item name, or SKU number and enter the applicable quantities, or scan the goods using a compatible barcode scanner.
2. Collecting payment: The POS system calculates the total cost of items sold, including sales tax, and the customer presents payment which can include:
- Swiping, dipping, or tapping a credit or debit card
- Waving a contactless mobile wallet or wearable device
- Using a gift card
- Writing a check
- Handing over cash
If a credit, debit, or check is used, the POS device captures a customer’s payment details and sends this information electronically to the merchant’s payment processor to route through the appropriate networks for authorization. Thereafter, confirmation of the transaction is sent back to the POS device.
The authorization process takes just mere seconds, with multiple layers of security built in at various stages to help prevent sensitive payment data from falling into the wrong hands.
3. Completing the sale: Once electronic payment has been authorized or change has been given to the customer, the sale becomes complete, and a receipt is either printed, emailed, or both. The items are deducted from the inventory, and points or rewards are added to a customer’s profile if a loyalty program exists.
What to consider when choosing a POS system
The world of POS systems has gotten a lot more crowded in recent years, so your choices are now much more plentiful. To determine which POS is right for you, we recommend starting with your business type and structure, goals and expectations, and budget considerations.
Your business
The first and most immediate question to ask when choosing a POS system has to do with the nature, size, and structure of your business. Namely:
- Are you in the food, retail, or service sectors?
- Do you sell products, services, or a mix of both?
- How do you want to accept payments?
- What are the challenges in running your business?
- What is the size of your business?
- Do you operate strictly online, have a brick & mortar, pop-up, or mobile store?
- What is your staffing setup? E.g., are you employee-owned, fully staffed, or work primarily with contractors?
Your goals and expectations
What is a POS system supposed to do for your business? In its most basic function, it will provide payment processing. Depending on your needs, you may also want to use POS technology for the following:
- Order management
- Inventory management
- Cost tracking and management
- Payroll & other staffing needs
- Reporting
- Making payments to vendors and other suppliers
- Customer management
- Customer engagement
Those last two points merit special consideration, as POS systems can collect, store, and sort valuable information about your customers so you know who is the most loyal to your business, what do they like to buy, who are the ones most likely to respond to a discount or coupon offer, and so on.
Let’s also think down the road a bit. Do you have a strategic plan mapping out your next 1, 5, 10 years? Are you interested in growing the business or opening new locations? Or do you plan to keep steady with your initial launch?
Your finances: present and future
Having a good grasp on your budget is important when choosing a POS system for your business. In your income and expense projections, account for credit and debit card processing fees. Think about your item costs, and estimate your average sale. That data will be useful since credit card fees often include percentage of the sale as well as a flat transaction fee. Your plans for growth over time, if any, will also have an impact here.
Do you use an independent accountant, have a bookkeeper on staff, and/or do you rely on software like QuickBooks? Some POS systems will work and share data with your accounting software. Source
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