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What is a POS system?

man using a pos system in a bar
(Image credit: Shutterstock)

What is a POS system? As a business owner or business manager looking to upgrade your business' payment processing system you may be scratching your head at this question. But the good news is you probably already know what these systems are, the terminology is just slightly new. 

A POS system, or point of sale system is a combination of payment hardware and software which sets your business up to conduct transactions for products or services at both your physical and online businesses. For electronic versions of POS systems, you may hear the term  'ePOS' for electronic point of sale system. 

POS hardware typically takes the form of a card reader, register, or tablet. The POS software meanwhile, links everything together and has functions for managing inventory, staff, and customer data. But more on that later.

As a merchant, you likely have a physical-front store, online shop—or indeed, both—and need a commercial system that can process payments or refunds quickly and record transaction history accurately. Sounds simple enough, right? 

When you start to think about how these situations can play out in detail, from tourists paying with different card types and currency, to loyal customers paying with a mix of cash, store credit, or gift voucher, a simple sale gets a little trickier to process. 

POS systems: more than just a point of sale

A POS system is designed exactly for this complexity. They are equipped to deal with all customer needs at the point of sale, from sending email gift receipts to reminding you of current promotions to boost sales. 

When used effectively POS systems are capable of driving down cost and improving margins without sacrificing service levels. There’s tons to choose from, and in our roundup of the best point of sale systems, Shopify, Square and Vend topped our list of recommendations.

POS systems also offer you business insight to keep operations smooth and highlight areas for development. They can alert you when inventory is running low, notify you, ensure you're keeping on top of compliance-related payment regulations, and help your business avoid fines and other administrative costs (such as chargeback fraud), all while offering advanced security features that protect from data theft and cyber breaches.

Point of sale systems are sometimes used to refer to the cash register, or even called a POS cash register. The reality is that they're much more than the old fashioned cash register. In today’s world, modern digital POS systems give your business an edge, and let you check out customers from wherever your business is based.

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What is POS system and how does a POS system work? 

As mentioned above, a POS system is made up of hardware and software elements that work together to process sales and payment transactions at the point of purchase. Example POS hardware includes a card machine reader or order management screen, while POS software provides cloud-based solutions for secure payments. 

It performs all the basic cash registers functions like ringing up items by department. Beyond tracking sales, adding taxes and creating receipts let's dive in to the other many benefits of modern POS systems.

Find out more about How a POS system works.

Benefits of a POS system

person using a tablet POS system

POS-enabled tablets are ideal for restaurants as they can display menu items and be used to take orders (Image credit: Getty Images)
  • Smother customer experience overall
  • Better customer satisfaction and loyalty
  • Accurate inventory database management and counting
  • Superior payment processing service and security
  • Efficient purchasing/supplier order management
  • Faster customer order management
  • Quicker payment transactions
  • Improved, easier invoicing
  • Fewer human counting and recording errors to save time
  • Automated employee IDs and reporting
  • Advanced reporting tools or integrations available
  • Multi-store functionality
  • Modernises your business for today's payment standards

One of the big advantages to a POS system is the amount of time that you and your employees will get back by opting for a system that has time management options. 

Other benefits to having a POS system include increasing employee productivity , thanks to POS software doing a lot of the operational calculations, costing and thinking for you. Typically streamlining operations with a POS system leads to reduced business costs too. Not to mention less human errors; detailed sales reports at your disposal and offering customers current options to pay however they please. 

To get started with choosing a POS system, you will need to consider which specific features and customization options your business needs. Example scenarios:

Retail business owner

Retailers that sell electronic goods will need their products to contain serial numbers to identify models, makes, and specific items in stores. 

Online fashion business owner

Clothes retailers, on the other hand, will need their products to have separate brand-specific SKUs. Due to the high associated costs of items, jewellery stores will need to search for POS systems that issue alerts for incorrect billing attempts. 

Convenience corner store owner

And for groceries, point of sale systems require goods to contain both sell-by dates and a unit of measurement in order to allow companies to sell items at a discount once.

Types of POS system

Multichannel POS

Multichannel POS systems enable integration with your website, third-party and partner online market places, plus social media outlets to keep your offers relevant.

Best for: Multichannel ecommerce brands.  

Desktop POS, Mobile POS (mPOS) and Tablet POS

One of the great benefit of POS systems is the flexibility they offer. Most POS software has an application that can be opened across any device. While this might typically be a dedicated desktop for your company, mobile and tablet POS systems afford you flexibility as you expand your business or introduce pop-up sales locations. 

Best for: Travelling and expanding businesses

POS applications 

Most brands have an app these days, and POS companies are no different. A POS app can work as a extension of your POS hardware system, or as the main software dashboard for overseeing all sales and transactions. 

Best for: mobile businesses that move across sites

Open-source POS software

This type of point of sale system allows you to directly edit the creator's source code to create a custom POS solution for your business. 

Best for: If you're an enterprise with very bespoke technology needs and multiple integrations, open-source POS software might be for your business. 

Components of a POS system 

Today's POS systems have evolved from simple cash registers and can do much more than simple transactions. They are ubiquitous in many sectors—hospitality, retail, and leisure—and come in different shapes and sizes depending on the needs of the business. 

Some POS systems combine hardware (such as a server computer) and software in a single unit, whereas others separate the two by connecting a ‘dumb’ terminal to a server located either on-premise or in another building. 

Combination POS systems

Some POS systems combine hardware (such as a server computer) and software in a single unit, whereas others separate the two by connecting a ‘dumb’ terminal to a server located either on-premise or in another building. For cloud-based POS systems, terminals connect directly to the internet to run software that updates automatically. 

Modular POS systems

Many are modular, allowing additional hardware units to be connected for displaying metrics such as order total and product weight. Others can scan barcodes, print receipts and handle security needs – for example, credit card processing systems designed for taking credit or debit card payments.

POS systems are also customizable on the software side, allowing businesses to manage membership programs and loyalty schemes to grant customers discounts on future purchases. Here, UX and design become critical to their effectiveness. 

Terminals in restaurants, for example, will prioritize usability and speed by featuring enlarged buttons on big and bright monitors to make it quick and easy for staff to book tables for customers in dark environments. 

Handheld POS systems

Conversely, a handheld EPOS (Electronic Point of Sale) terminal on a market stand will be barely bigger than a credit card while featuring the ability to house a 4G SIM card for connecting directly to the internet to process payments online.

Find out how much a POS system costs.

Cashier swiping groceries through a POS system

Modular POS systems are ideal for food stores, as they can measure the weight of an item. (Image credit: Future)

POS systems: beyond transactions 

A POS system can reduce reliance on manual processes, making it a vital tool in helping businesses to digitize their processes and reduce reliance on spreadsheets. Powerful POS solutions excel in providing real-time, actionable data that enables tasks to be undertaken efficiently and quickly.

✔ POS systems are perfect for getting to know customers better

This includes the ability to store information and build customer profiles to understand more about customers. This in turn leads to better marketing capabilities such as the ability to create customer groups – for example VIP shoppers – that can be targeted through direct marketing campaigns. 

✔ Monitor employee performance

At same time, POS systems allow you to find out about your own employees’ performance by letting customers tip your workers using pre-set percentages, which is especially useful for companies in the service industry. 

✔ Track product and sales reports with ease

And when it comes to reporting, POS systems can tell you when certain items are becoming more popular while helping you to ensure that you have a sufficient amount of them in your inventory. It can be achieved through digitised product catalogues in systems that track inventory and automatically updating quantities as buyers purchase them.

Whatever your reason for wanting a POS system, you should consider what your business requirements are before deciding what kind of solution fits your needs. 

To help you make an informed decision, our experts have prepared the following articles: How to choose a POS system for a retail store, How to choose a POS for a small business, and How to choose a POS for a restaurant or bar or a POS for a food truck.

Desire Athow

Managing Editor, TechRadar Pro

Désiré has been musing and writing about technology during a career spanning four decades. He dabbled in website building and web hosting when DHTML and frames were en vogue and started writing about the impact of technology on society just before the start of the Y2K hysteria at the turn of the last millennium. Then followed a weekly tech column in a local business magazine in Mauritius, a late night tech radio programme called Clicplus and a freelancing gig at the now-defunct, Theinquirer, with the legendary Mike Magee as mentor. Following an eight-year stint at ITProPortal.com where he discovered the joys of global techfests, Désiré now heads up TechRadar Pro. He has an affinity for anything hardware and staunchly refuses to stop writing reviews of obscure products or cover niche B2B software-as-a-service providers.