How POS Systems Work

A POS, or a point of sale, system is one that can help retailers reduce paperwork and track inventory, in addition to being a way to market to your customers. Not only does a POS system help you to manage your business and speed up checkout times, they also help keep your customers happy, which is important in any business.

Most of the POS systems on the market are specifically made for small businesses, and many of them are even specific to certain industries. For example, a florist and an auto shop have different needs. Thus, these businesses would need different features in their point of sale system. The real beauty of these systems, however, is that they house so much information for your business, that most business owners really learn to rely on them.

The big question here, though, is this: How do they work? In order to answer this, we need to first take a look at these systems in general, and then get a better grasp on what they do, the components of a POS system, and how different industries can use them.


More Than Just a Fancy Cash Register

When some people think of POS systems, they simply think of a cash register. That’s not wrong, as at its most basic form, that’s exactly what a POS system is. However, most POS systems on the market today go above and beyond what a cash register does. 

Back in the day, the person operating the cash register would have to manually enter prices of items, much like you would use a calculator to add a series of numbers. The cash register would then give a total, the customer would pay, and the operator would take their money and place it in the cash drawer. In many cases, the only record of these transactions would be a copy of the receipt roll.

Though you might occasionally find those old systems out there, in most cases, these POS systems are much more sophisticated, and they are, for the most part, totally computerized. Many are also cloud-based, and data can be stored online and accessed from anywhere.


Components of a POS System

There are two groups of POS system components; software and hardware, and how POS systems work rely on both of these components.

First, let’s look at the software components of a modern POS system. For on-site POS systems, the software used to run the system is locally installed on the server, such as on an on-site computer in a store. In general, you must purchase the software licenses, and you must update and maintain it. There is also cloud-based software. In this case, the software is hosted on a cloud, and you access it through a computer browser. Also known as SaaS, or software-as-a-service, is automatically updated and maintained through the provider in almost all cases.

On-site POS software was the norm for many years. Today, however, it is more common to find a cloud-based POS system, or even, perhaps, a system that uses features of both local hosting and the internet. On-site POS software can be expensive to set up, and in most cases, a professional must assist with this. Cloud-based systems, on the other hand, are usually more affordable, and they can be integrated with other programs.

POS software applications can have a lot of variety in terms of what layout and features they might have. Every business has its own needs, and thus, these applications are created to accommodate this. For example, a POS software system for a restaurant would have some type of table layout on it so that orders can be associated with specific tables.

Now, let’s look at the hardware associated with a POS system. Again, since all businesses have different needs, you can find different hardware components, too.

There is always a main device, such as a cash register or computer monitor. There is also usually some type of cash drawer or receptacle where cash and receipts are kept. Speaking of receipts, there is also typically a receipt printer associated with a POS system. This prints receipts for customers, and it can also print out different reports.

Many POS systems also have a barcode scanner. These are usually connected with the retailer’s stock levels. Card machines are also part of a POS system, and these, of course, are used to process payments via credit or debit cards. These might require their own software, and typically, they must use Wi-Fi or other internet connections. If you are using a cloud-based system, you also need your network devices, such as modems and routers.


What Can a POS System Do?

There are a number of things that a POS system can do. Let’s take a look at these:

Data Entry

One of the main things you can do with a POS system is data entry. These systems are designed to make tasks like date entry as easy as possible. Again, this is something that might be industry-specific, especially when it comes to entering information about inventory.

Inventory Management

Speaking of inventory, another feature of POS systems is managing inventory. This is a huge timesaver for people who work in these industries. These all track what inventory is on hand and in some cases, will even show where the inventory is stored.


We also mentioned that these systems can do marketing for you. These marketing strategies are fairly simple, but they can help to bring in even more business.


These systems also allow you to run reports. This includes financial reports, of course, and you can get information such as gross sales, the cost of goods, customer purchase history, and other sales reports. You can also customize these reports for what you need.

How Different Industries Use POS Systems

To really understand how POS systems work, you must look at how some industries use them:

Let’s first look at a small flower shop. A business like this likely has a simple cloud-based POS system that they use with an iPad and a Bluetooth card reader. They also might have a cash drawer that is connected to the iPad or small computer.

Retailers always use POS systems, and for a shop, it might be best to use an on-site POS system. Though this type of system is not portable, it usually has a lot of features that do things such as track inventory. These systems may also have other components depending on the industry.

Restaurants may want to use some type of hybrid POS system. These businesses need features like sending food orders, tipping options, and even some type of reservation system. But the restaurant also needs the features that a retailer might need, such as inventory tracking.

As you can see, POS systems have very much changed the way companies do business, and how POS systems work depend on the type of system in place. They are an inventory tracker, a cash register, and a marketing machine, all in one. If you are a small business owner considering a new POS system, consider what your needs are, and then talk to a trusted POS provider for more information about what might be the best choice for you.