Small Business Guide to POS: Point-of-Sale Systems and Software

What is a POS system?

A POS system is the technology businesses use to complete sales transactions. When you buy something at a store, whether it’s a cup of coffee, a pair of shoes or a meal at a restaurant, the transaction is processed and logged through a POS system. At the checkout counter, the cashier uses a POS system to ring up your items. This usually involves scanning the barcodes or entering the prices manually, calculating the total, including taxes and then accepting your payment. The system can process various forms of payment, such as cash, credit cards and digital wallets.

Parts and features of a POS system

In addition to accepting credit cards and cash payments, POS systems offer all-in-one solutions that allow businesses to become more efficient and even run their entire operations from their POS software.

Advanced features include customer relationship management (CRM) software, budgeting, POS reports, inventory management and marketing tools. The systems can also connect to third-party apps and solutions businesses already use, saving time and preventing headaches by automatically syncing data in real time as sales occur.

A POS system has two main parts: hardware and software.

General POS hardware

A simple hardware setup often comprises two POS components: An internet-connected device and a card reader:

• Internet-connected device: This is often a tablet (typically an iPad), though it can also be a smartphone. Some POS vendors may require you to use their own POS credit card terminals in place of a tablet or smartphone.
• Card reader: This device connects via Bluetooth or plugs into your tablet or smartphone and reads credit and debit cards. Free magnetic stripe card readers are often available but, in most cases, plan on upgrading to a model that has EMV technology so you can accept chip cards. Your card reader should also have near field communication technology to accept contactless credit cards as well as mobile payments like Apple Pay and other mobile wallets. You may also want a mobile credit card reader to accept mobile credit card payments more efficiently. For example, you can hand these readers directly to customers in sit-down service establishments.

Advanced POS hardware

More complex setups may include the following POS equipment:

• Monitor or display screen: Here, you’ll see all the sales details you’re processing and can view the steps needed to complete the transaction.
• Keyboard: Some POS systems include keyboards to enter transaction amounts manually or type in customer phone numbers or email addresses. Many of these keyboards have functions specific to certain industries, so make sure any keyboards you purchase meet all your daily needs.
• Cash drawers: These drawers store cash along with receipts and other paperwork. Cash drawers should receive open and close signals from your digital POS interface.
• Barcode scanners: These devices read the barcodes on the items you sell and convert this information to product names and prices that appear on your POS monitor. This function facilitates sales and allows you to automate your inventory tracking.
• Signature-capture device: Although, in most instances, businesses don’t need to require signatures on credit card receipts, your business may still find signatures necessary. These devices capture customer signatures digitally.
• Receipt printer: To finalize the transaction, this device prints a summary of the buyer’s purchases. You should always ask the customer if they want the receipt and it never hurts to keep a copy for yourself if your POS system allows this.
• User-facing kiosk: Those touchscreen self-service kiosks through which you place orders at fast-food chains count as POS hardware. If your business prepares items on demand for customers in a storefront, these kiosks can minimize order miscommunications and streamline order retrieval.
• Digital scales: When charging for items by weight, a digital scale can be a helpful addition to your POS system. A digital scale quickly computes the price you’ll charge for weight-based sales. The software connecting your scale to your POS system should also make corresponding changes to your inventory.
• Routers: Though not exactly POS hardware, you can’t run a POS system without an internet connection. That’s why some POS companies sell internet routers. Buying a router from a POS company is a one-time cost that’s likely less expensive over time than obtaining one from your internet service provider. An internet service provider router is usually a rental for which you pay monthly.
• Digital menu boards and kitchen display systems: Some restaurants might benefit from these additional two types of POS hardware. Like user-facing kiosks, they help customers see what they can order from you and may assist in actually placing the order. Many restaurant-focused POS providers sell these items, which may be more affordable through a bundle or package deal.

POS software

The software is what runs the system. POS software usually includes the following features and abilities:

• Simple mobile app or cloud- or web-based programs: This option is best if you will operate your POS from a mobile device. This software allows you to make transactions from anywhere as long as you have your mobile device and card reader.
• On-premises terminal programs: Alternatively, you can opt for programs only accessible on your business grounds at your cashier or another POS terminal.
• Accounting software compatibility: A key part of a trustworthy POS software program is the ability to integrate with your accounting software so you can plan your business budget thoughtfully. The best accounting software makes it easy to transfer data to and from your POS system so all your data is updated and stored across systems automatically.
• Inventory tracking: When you scan product barcodes upon purchase, your inventory-tracking POS software automatically updates your stock counts to reflect recent transactions.
• Gift card processing: Not all POS systems fully integrate with gift card programs. However, without this function, gift card processing can be needlessly complicated.
• Purchase-order creation: Think of this function as an extension of inventory-tracking capabilities. Some systems can be set to reorder products automatically when your inventory is low and reaches a certain threshold. This feature saves time reordering products and can ensure you have plenty of your most popular items available at all times.
• Vendor and customer management: Alongside purchase order creation for your vendors, you can also use some POS systems to manage your customer information. This way, you can capture customer contact information when you’re ringing up a sale. Some systems also allow you to use your digital receipts to request customer feedback in the form of reviews or business surveys.
• Employee performance tracking: You can use some POS systems to track employee metrics, such as sales volume, hours worked and (if applicable) tips earned.

Cloud-based, mobile-enabled restaurant POS platforms provide restaurants with benefits, such as faster innovation, lower information technology complexity and costs, exceptional guest experiences and increased security.

In addition, each specialty package, such as the one for restaurants and bars, offers its own unique features. Examples for a bar may include the ability to track bar tabs, split checks and manage special pricing for certain events, such as happy hour.

Typically, the POS hardware and software you need costs several hundred dollars. More advanced bundles can run into the low thousands. To save costs, avoid bundles and instead add individual key components to your cart.

Restaurant POS systems

For restaurants, hardware packages typically include a touchscreen monitor, terminal, receipt printer, cash drawer and card reader. Like retailers, restaurants also have a mobile POS option — typical setups consist of an iPad, cash drawers and a kitchen printer. 

While these are standard packages, most providers give business owners the flexibility of picking and choosing the hardware they need, which helps keep costs down.

What to look for in a POS system

You’ll need to make a series of choices when selecting a POS system. The following aspects are some of the most important to consider during this process:

• Terminal and peripherals: What type of hardware do you want? The best POS systems offer mobile and touchscreen systems, barcode printers, customer displays and PIN pads.
• POS software: Each POS system is only as good as its software, so be sure to choose a system that offers software with the features your business requires. This depends on your industry, unique needs and whether you get a traditional or mobile POS system.
• Mobile and wireless technology: At the very least, you should consider a POS system that offers wireless tableside or inventory tools. The best providers offer software compatible with most Apple and Android mobile devices.
• After-purchase care: Good customer support is a necessity. A POS system becomes the brains of a business, so when the system has a problem, it can bring the whole operation to a standstill. Business owners should prioritize finding a POS system provider that offers after-hours telephone support, installation assistance, training and remote support.

Benefits of POS systems

A POS system goes beyond basic functionality, offering a range of benefits that can enhance your business significantly. Here are some key advantages of incorporating this technology into your operations:

• Streamlined operations: Your business might have many systems and processes, from accounting software to e-commerce platforms. A POS system that works with them all integrates these diverse tools into a unified solution and allows them to share data. This integration reduces the amount of data you need to manually enter across different platforms, minimizing the risk of errors and increasing your business’s efficiency.
• Improved customer experience: With advanced POS systems, you can give your customers a more personalized shopping experience. These POS systems often include CRM features that track customer purchases and preferences. Use this data to create targeted promotions, develop loyalty programs and provide personalized product recommendations. These customized interactions can increase customer satisfaction and repeat business.
• Better inventory management: Feature-rich POS systems have the ability to track inventory in real time. Instead of counting stock manually or relying on guesswork, you can rely on your POS system to update inventory levels automatically and send reorder alerts as you make sales. This way, you keep popular items in stock and reduce the costs associated with excess inventory.
• Scalability and flexibility: When your business introduces new products or services, a scalable POS system can handle the increased complexity easily. You can add new items to the inventory quickly, categorize them appropriately and set pricing rules. As your business grows and you open new locations, a scalable POS system accommodates the expansion easily. Many advanced POS systems are cloud-based, so you can manage multiple stores from a single platform.
• Insightful data analytics: Advanced POS systems offer powerful reporting and analytics features. You can access detailed reports on sales trends and customer behaviors and use this information to make decisions that optimize your operations and marketing strategies.

Matching your POS system to your needs

A robust POS system is more than a tool for processing transactions — it’s a vital component for driving efficiency and growth. Modern POS systems have evolved significantly to offer features that streamline your operations and provide analytics that can transform how you run your business.

When you’re looking for the right POS system, consider the size of your business, the type of industry you’re in and the features that are most important to you. This way, you ensure your technology investments meet your current requirements and support your long-term goals for scalability and sustained success.

Shayna Waltower and Chad Broks contributed to this article.