A point of sale (POS) system is a machine or piece of software that allows you to process customer transactions, issue receipts and track your sales.
All merchants need some kind of POS system, whether that’s a physical POS machine for your retail location or a cloud-based solution to take online payments.
That said, the distinction between the two is not necessarily so clear cut: Most modern POS systems rely on software and it’s even possible to transform your smartphone into a POS that you can use in a physical retail location simply by downloading an app.
Additionally, POS systems are now much more than payment processing devices, and integrate other functions, such as inventory management, performance analytics and more.
All this has made it easier than ever to set up a business and start taking payments. In this article, we’ll help you understand what a POS system is and how it works, the different types, the costs, and the pros and cons, so you can find the best solution for your needs.
» MORE: What is a merchant account?
What is a POS system and do I need one?
POS systems allow businesses to accept payments both online and in store, track and analyse their sales, and monitor their inventory. They can integrate both hardware and software elements, or be entirely cloud-based.
A typical POS system in 2024 might include a tablet, card reader, cash drawer, receipt printer, barcode scanner and software for tracking and analysis. Alternatively, it could simply be an app that the retailer accesses through their smartphone or tablet.
Whether you own a brick-and-mortar store or run an ecommerce website, you will need a POS system in order to take payments. Not only do they allow you to take multiple payment types, but by automatically updating your stock levels and recording sales performance, they can help you to run and grow your business more efficiently.
» COMPARE: POS systems
How does a POS work?
POS systems may vary, but they perform the same essential functions. Here’s how your POS system works during a typical transaction:
- The customer arrives at your physical or virtual checkout ready to make a purchase.
- Your POS system calculates the total amount due for the goods in their basket, as well as any taxes, shipping costs, or discounts, and presents the customer with the amount they need to pay.
- The customer either hands over cash, taps their card or digital wallet on your payment terminal or, for an online payment, enters their details into the checkout window.
- The payment is processed and approved, and your POS system logs the amount, time and date of the sale for your records and reporting. It will also update the number of items you have left in stock so that you don’t oversell and can order more before you run out.
- The POS system can also act as a customer relationship management (CRM) tool, collecting data on the customer’s preferences and purchase history, which can be used for marketing campaigns and loyalty programmes.
- The customer will receive an email or paper receipt and, if they paid with cash, their change.
In addition to the sales process, some POS systems can track the hours worked and sales performance of your staff. This data can be very helpful for employee management, including identifying top performers and productivity.
What are the types of POS machines?
There are a number of different types of POS machines, some of which are designed for specific functions or sectors. The main types are:
- Physical POS: A retail POS includes all the equipment and features you need to take and record sales in a physical retail environment. They can include a card reader, screen or tablet, scanner, receipt printer, customer display and cash drawer. They can also incorporate sales software and inventory management.
- Mobile POS: These software-based POS systems allow you to turn your smartphone into a device for accepting contactless card or digital wallet payments. They also include sales tracking and reporting, and product management, all of which are accessed through your phone. You can also get a card reader and countertop dock for your mobile POS.
- Cloud-based POS: Cloud-based POS systems are hosted remotely using servers and databases in the cloud, allowing you to access their functionality through any internet-enabled device.
- Hospitality POS: Hospitality POS systems are designed for restaurants, cafés and bars, and include additional functions such as online ordering, self-service kiosks and table management.
How much does a POS machine cost?
The cost of your POS system will depend on whether you have a physical, mobile or cloud-based system, and, if you’re a hospitality business, whether you need specialist functions.
- Mobile app: If you choose an entirely mobile, app-based POS, you may only have to pay transaction fees, which can range between 1.5% and 2.5% of the payment amount
- Card reader: Simple card readers can cost as little as £19 plus VAT for the device. On top of that, you’ll pay a transaction fee for every payment.
- POS hardware: For more sophisticated set-ups, which could include a payment terminal, display, cash drawer and other equipment, you’ll pay a higher monthly or outright fee, as well as a per transaction fee. For example, you could pay in instalments of around £50 plus VAT per month or, if you’d prefer, an outright amount of £599 plus VAT
What are the advantages of a POS system?
There are several advantages of using a POS system for your business:
- Versatility: They can be used to accept online and in-store payments and multiple payment types
- Multi-functional: Modern POS systems incorporate a range of features, such as inventory tracking, sales analysis, CRM and employee management, which streamlines your business operations.
- Scalable: As they’re not restricted by physical infrastructure, POS systems that are based in the cloud can scale alongside your business as it grows.
- Secure: POS systems have built-in security systems, such as encryption, that protect your business against cyber crime.
- Compliant By recording your sales, POS systems help you calculate tax and comply with other financial regulations.
What are the disadvantages of a POS system?
There are three main disadvantages of a POS system:
- Costs: Some POS systems can be very costly, which will put a dent in your profits.
- Internet-reliant: Whether physical, mobile or cloud-based, POS systems rely on an online connection, which, if the signal is poor, could prevent you from being able to take payments.
- Security: While decent POS systems have advanced security features, there is always a chance that your system could be hacked and your data stolen.
Image source: Getty Images
About the Author
Dive even deeper
How to Choose a Company Structure and Register a Business
by George Harrison
What is Accounts Payable?
