A point of sale terminal (POS terminal) is an electronic device used to process card payments at retail locations.
What Is a POS Machine?
The full meaning of POS is “point of sale,” or, in other words, it’s where your transaction is finalized. The term itself can have a couple of different interpretations.
In the narrowest sense, it means that the terminal that sits beside the cash register to process credit and debit cards, and any gift cards you accept at your business. More often, when you speak of a POS machine, you’ll be thinking about the whole terminal, that has an informative screen and the ability to handle every payment type.
There are a lot of special-purpose POS devices, too, and they fall somewhere between the simple card terminal and a comprehensive, full-bore POS system. Whether your needs take you to the high-end or the low-end, every POS machine needs to handle some of the same basic functions.
Basic POS Functions
The original POS machine was a simple cash register. It didn’t do much by modern standards, but it did keep a record of every sale that a cashier had rung in.
From that, as long as you knew how much cash was in the till to start the day, you could work out whether any money had gone missing. Your daily totals showed you whether your sales were increasing or decreasing, and from counting the number of transactions, you could work out the value of your average sale.
If you knew the dollar value of your starting inventory, you could also work backward from your sales totals to find out if you were losing money to inventory theft or unrecorded sales. These are all basic POS functions, and even the earliest cash registers made it a whole lot easier to run a sales-based business.
As the years went by, cash registers became a lot more capable. They could be programmed to add appropriate taxes to the selling price, so that you wouldn’t have to work them out manually, and they could also record the tax amounts for accounting purposes.
They could provide subtotals by product or product category, and eventually – as computers became cheaper and generally more available – they were designed to interact with computerized back-end software. That’s the point in which the traditional cash register transformed into a point-of-sale system, as we use the term today.
Retail POS Systems
A modern retail POS machine goes way beyond the basic functions of an old-school cash register, even when it looks like one on the outside. On an ancestral cash register, you needed to enter the price of each product manually; now, however, the prices are pre-programmed into the system and are read from a bar code scanner.
That cuts down substantially on the potential for mistakes, and it also improves the accuracy of your sales reports. The POS terminal can be set up to track and record your sales of products and services in just about any way that’s meaningful to you, and usually, this ties directly into your accounting software so that information is always at your fingertips.
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The POS machine itself may still look like a cash register with a cash drawer underneath, a traditional keyboard arrangement and a built-in receipt printer that uses a roll of narrow paper to print its slips.
Some systems take a different approach, putting a small computer under the counter with the cash drawer and using a computer-style keyboard to enter any data that doesn’t come from the barcode scanners.
Another style of POS machine does away with the keyboard entirely, using touchscreens to enter the information. The style of terminal you use isn’t really the most important thing. All three of these types, as well as more specialized niche terminals, simply work as a front end for the software that really runs your shop.
Transactions Are Just the Starting Point
Ringing in a sale is the most fundamental thing a POS machine does, but you don’t need a piece of sophisticated equipment for that. You could do it with a pen and a receipt book if you need to, and there are many small operators who do exactly that. The problem with keeping track of your transactions manually is that it’s time-consuming, and it limits your company’s growth. A modern, computerized POS system is designed to streamline your access to all of your sales information, for accounting and management use. That ability to turn raw sales data into something manageable is what you’re really paying for.
Streamlined Accounting and Reporting
Cash flow may be the life blood of a business, but information is the bone and sinew, and that’s where a good POS system will shine.
It puts all of your sales information directly into the hands of your accountants, either by exporting data to your accounting system or – ideally – by integrating directly into your accounting software.
Eliminating the extra step of data entry gives you faster reporting, and it bypasses a point in which mistakes can creep into your accounting.
All of your sales data is at your fingertips every day, often on an up-to-the-second basis, so the management decisions you make will always be based on solid information.
Do you want to know which products or categories are selling best in each location or in each department? Which shifts, or which individual salespeople, are responsible for moving the most product? How many customers took advantage of your most recent coupon offer or came in for the product you only advertised in one particular place? Your POS system should tell you those things, or it should be able to, with minimal tweaking.
Another thing a POS system will do for you, and it’s a very important one, is to provide you with up to date information on your inventory levels. The computer records your starting inventory for the period and then monitors sales going out and orders coming in, so at any given moment, the inventory shown on your computer should be up to date.
That’s called “perpetual inventory,” and it’s both a convenience and a major management tool. If you have an accurate, up to date inventory, and a solid projection of what your sales should be in the coming weeks or months, you can order only as much inventory as you’re likely to need.
Ordering only what you need, when you need it – you’ll see it described as “just in time” ordering – can be a real game-changer. Your cash resources aren’t tied up in excess inventory, you’ll need less warehousing space, and you’re less likely to find yourself marking down outdated merchandise just to get rid of it.
Physical Inventory Management
Some POS systems can help you with your physical inventory management, too. They’ll keep track of your incoming products by category, by physical location, or any other criteria you deem important.
When it’s time to count your physical inventory, and then compare it to the computer’s perpetual inventory, your POS can tell you where to look and how many are supposed to be in any given section.
If you have products warehoused in different locations, and one warehouse shows more lost or misplaced product than the other warehouses, this tells you that you may have a security or theft problem at that specific location.
Even if this proves to be simple carelessness, that’s useful information that you can then act on to ensure that everybody is following the same procedures.
Customer Relationship Management
As important as accounting and inventory management are, there’s more to a successful business than bean counting. How you interact with your customers, and what you know about them, can make or break your hopes for long-term growth. Many POS systems track your customers’ purchase histories over time, and you can begin to get a feel for who your best customers are, and which new products might appeal to them.
Without the computer’s help, it’s sometimes easy to overlook the un-flashy customers who are steady customers but who don’t make a big enough splash to be memorable, yet they’re often the backbone of your business.
Hospitality POS Systems
POS systems aren’t limited to conventional sales-based businesses. They’re also crucial in the hospitality industry, where they are used to handle even more complex scenarios. In a restaurant, for example, the system has to track orders that are placed, and to print tickets for the kitchen crew, to let them know what to prepare.
Sophisticated systems can take that a step further and print separate tickets for each workstation in the kitchen, so that each individual cook has a personal list of orders. The system also must be able to track tips, catering fees and a variety of other special charges, as well as tracking the usual selling prices and taxes.
The most capable restaurant POS systems can also provide the kind of help with inventory management that retailers enjoy. In those instances, the recipes from the standard menu are all entered into the computer in advance.
If your customers want 213 orders of your signature pesto shrimp dish on a given evening, the system can adjust your inventory levels to show you how much of a dent that made in your ingredient supply. You’ll always know when and how much to reorder.
POS Card-Processing Terminals
It’s nice to dream about having all of those features at your fingertips, but realistically, not every business requires a full-scale POS system, especially at the beginning.
You might be fine with an old-school cash register for now, especially if splashing out for a flashy POS system would leave you short of funds for other important things, like inventory and payroll.
In that case, all you really need is a card-processing terminal. Anyone can accept cash and checks as payment, and these simple POS machines give you the option of taking credit cards, debit cards and gift cards, as well.
In some cases, even sophisticated POS systems make the pragmatic decision to use separate card-processing terminals.
If you build that function into a monitor or keyboard, the only way to upgrade it is by replacing the monitor or keyboard, which is usually a costly option.
With separate terminals, when new technologies, such as chip-based cards or tap-to-pay cards come along, you just need to have your payment-processing service replace or update the terminals.
Mobile Card-Processing Terminals
There are even ways for mobile businesses to accept card payments, which can be very handy, if you’re an artisan or a farmer’s market vendor, or if you operate a cab or delivery business.
If you have a pizza restaurant, for example, the company that provides your regular card-processing terminals can probably set you up with a battery-operated mobile version for your delivery drivers. Those use cell phone technology, with a SIM card and mobile data, so you can accept payments anywhere there’s a cellular signal.
You can even add a small card reader, or “dongle,” to your phone or tablet so that you can use it as a simple POS device. Card readers are available from a number of vendors, and they accept payments through services such as Square and PayPal, as well as through conventional service providers.
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