What is a point of sale (pos) and how it works?

Julie WarshawPayPal Editorial Staff

Julie Warshaw

PayPal Editorial Staff

September 29, 2022

Hand touching a contactless payment against a PayPal point of sale system

When a shopper is ready to make a purchase, you want to provide the smoothest checkout experience possible–especially when they're in your store with a product in hand.

That's where a point of sale (POS) system comes in. The moment browsing turns to buying, your POS should be ready to seamlessly process the transaction. Otherwise, you risk frustrating would-be customers and losing revenue.

A point of sale (POS) system is a platform that businesses use to process and complete customer payments. Comprised of hardware and software, POS systems are used when customers make a purchase online or in-store.

Before the internet age, the common POS system was a cash register. Now, shoppers expect digitally powered, contactless, and secure transactions that work as seamlessly as the other apps and devices in their life.

With the right POS system, you can accept a range of payment methods and provide easy checkout experiences. Beyond processing transactions, the right POS solution can also give you insight into your customers and operations, helping you find new, innovative ways to scale your business.

Here's a closer look at what you need to know about POS and how to find the best solution for your business needs.

How does a POS work?

Businesses of all kinds can benefit from a streamlined POS solution. They can use POS systems to process and track purchases on one platform. And, as they grow their companies, they can gather customer insights, activate special offers and discounts, and manage product inventory.

POS systems can also be particularly helpful for businesses in the food and beverage, nightlife, and retail industries. Cafes, for example, can use POS systems to send orders to their kitchens and track popular menu items. And boutique stores can use POS solutions to build customer databases and sales reports.

Let's look at a sample scenario: Leo owns a record store called Chairman of the Boards, and he uses a tablet POS system with advanced software. A shopper approaches the checkout counter to buy an album using her credit card.

Here's how the POS system would work, from start to finish:

  • A sales associate scans or selects the specific album on the store's POS-enabled tablet.
  • The system software pulls up the price of the album and adds sales tax, displaying the total amount owed.
  • The customer swipes her credit card through the card reader hardware, which uses software to send a payment request from the Chairman of the Boards to her bank.
  • The request is authorized by the customer's bank, and the record store's POS system processes the payment.
  • With payment received, Leo's POS software automatically updates his inventory data to show that a unit of that item was sold.
  • The customer chooses to receive a digital copy of her receipt and provides her email address.
  • The POS system emails the customer her receipt, and the transaction is completed.

Different types of POS hardware

POS hardware lets you accept payments in person, such as at a checkout counter, bar, or food truck.

POS hardware comes in a variety of forms and offers different functionalities. These are a few of the most common:

POS register: A Wi-Fi-connected POS cash register can help you process transactions, accept different payment methods, and track sales data.

Tablets and monitors: Connected devices—like POS tablets and iPads—provide user-friendly, touchscreen interfaces for employees and shoppers. They can be used to display prices, add tips, and choose receipt options. Since they're portable, they can also enable checkout from anywhere in your establishment.

Credit card readers: A secure, EMV-compliant card reader allows customers to quickly make purchases with the swipe, tap, or chip-enabled credit card of their choice.

Receipt printers: For shoppers who prefer printed receipts over emailed receipts, dedicated receipt printers can fulfill their requests. With a receipt in hand, customers can see a rundown of their purchases and keep a paper copy of their transaction.

Barcode scanners: With a barcode scanner connected to your POS system, a customer or employee can pull product and price information in an instant. Advanced barcode scanners will also support specialized scans, such as QR codes, which customers can use for contactless checkout and to redeem special offers.

Cash drawers: Customers who don't want to pay digitally or with a credit card should still have a fast, secure option for making their purchase. Connected cash drawers can keep your business's money safe and cash payments organized. By syncing a cash drawer with your POS system, you're able to track your cash transactions by generating data each time the drawer opens and closes.

POS software features

POS systems run on software, just like your phone or computer does. Since POS software can sync across devices and share updates in real time, it acts as the nerve center of your business.

Beyond just processing payments, comprehensive POS software systems can help you manage many other aspects of your company.

Here are some common built-in POS features:On-premise POS vs. cloud POS

An on-premise POS or traditional POS is fixed to a static location like the checkout counter at the front or back of the shop. Most traditional POS systems store data on a local server and are updated manually.

A cloud POS or mobile POS connects to other devices using Bluetooth and Wi-Fi. Since cloud POS systems are portable, they can be accessed throughout a retail location or even on the go. They also use cloud-based technology to store data, keeping people and devices connected in real time. This means that anyone using a connected device will have up-to-date inventory and customer information.

In-person payment processing

POS payment processing is one of the most important features of your software. Possible POS payment methods include:

  • Credit and debit cards
  • Digital wallets such as Google Pay and Apple Pay
  • QR codes
  • Gift cards
  • Cash
  • Contactless payments
  • Card-not-present transactions, like when you manually enter credit card information
  • Online payments through your e-commerce site

Learn more about POS payment processing and how QR code payments work.

POS integration

Modern point-of-sale systems can connect to entire ecosystems of third-party platforms to help businesses sync data and simplify their workflows. With the right integrations, you can also avoid the hassle of learning new software or migrating data.

Common POS integrations include e-commerce, accounting, and inventory management platforms. PayPal Zettle, for example, integrates seamlessly with BigCommerce, Inuit QuickBooks, Adobe, SalesVu, and WooCommerce.

Inventory management

Automatically update inventory in real time with your POS system. Some POS inventory management platforms will even alert you when stock is running low. You can use this inventory data to reorder best-selling items in advance, helping to ensure you don't run out of your most popular items.

POS reports

Your system may be able to generate POS sales reports based on customer activity and transaction data. These POS reports can provide a comprehensive view of key metrics, including total sales, cost of items sold, gross margins, and net profits. With these insights at your fingertips, you can make more informed decisions to fuel small business growth.

Staff management

Use your POS system to set up unique accounts for each employee. This way, staff members can clock in and out from one unified platform. POS employee management features can also help business owners create schedules and track staff performance.

Tipping with a POS

Make it easy for customers to show their support by providing POS tipping options at checkout. Many POS systems will prompt customers with suggested tip amounts, so they can simply tap and add the extra payment. A POS tip management feature can also help you track, organize, and distribute tips to employees as needed.

Build customer profiles

Create comprehensive customer profiles that store payment and contact information, purchase history, and loyalty status, so customers only have to share their information once. This data can be used to launch personalized marketing campaigns and distribute special offers based on each customer's interests and preferences. Sales associates and customer service representatives can also access this information to deliver more personalized assistance both online and in-store.

How to choose a POS system

Choosing the right POS system depends on the unique needs of your business. Your POS system can be a one-stop shop for accepting payments online and offline, managing customer interactions, and connecting to the most important parts of your company. There's a lot to consider.

For small businesses wondering how to choose a POS system, make sure your solution supports:

  • Multiple payment methods for fast, contactless transactions
  • Hardware devices like card readers, barcode scanners, and cash drawers
  • On-premise and cloud-based payments
  • Integrations with third-party platforms
  • POS reports of sales, costs, and profits
  • Real-time inventory and staff management
  • Customer profiles of contact information and purchase history

The right POS system can help your small business drive sales and unlock new opportunities for growth—while giving you the tools you need to manage operations from anywhere.

If you’re shopping for a POS system, PayPal Zettle can help you streamline your transactions and business operations. Click here to learn more about our complete Point of Sale Solution.

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