Point of Sale

Updated on April 11, 2024
Article byRamya Thiyagaraj
Reviewed byDheeraj Vaidya, CFA, FRM

Point of Sale Meaning

Point of sale (POS) refers to the payment counter in a retail store where customers pay for their purchased goods. When a customer picks out a product and wants to check them out, a culmination of hardware and software helps businesses make those sales. It helps customer management be easier and the time taken is the bare minimum.

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Likewise, POS can be found at restaurants, hospitals, gas stations, hotels, etc., to allow a space for customers to pay their bills. The payment page of an online transaction is also a POS example. POS is a vast world, allowing efficient management of business data, inventory, and customer relationships.

Key Takeaways

  • Point of sale (POS) is where a customer makes the payment for goods purchased in a store. To simplify, a POS is the point of purchase where orders are processed, bills are generated, and customers pay for their purchases.
  • Customers can find a POS system at retail stores, restaurants, hospitals, gas stations, hotels, etc., to allow a space for customers to pay their bills. The payment page of an online transaction is also a POS.
  • The POS system allows processing payment transactions, recording of transactions, inventory updates, and various other things depending on the software features.
  • A point of sale system and terminal are usually made of machines such as a desktop, POS software, scanner, debit/credit card machine, and printer to facilitate a transaction.
  • A POS system is known for streamlining the sales processes and tracking sales and inventory. It also helps record business data, automate inventory management, and boost customer relationships.
  • POS systems throw up more positive effects by allowing retailers better analytical thinking and planning. In recent days, cloud-based POS systems are gaining popularity.

How does the POS System Work?

Point of sale systems enable a business to accept payments from customers and track sales. It keeps track of different data related to a business. Think of a payment checkout counter at a store. The counter displays a point of sale system and terminal. The POS system refers to the place where the customer makes the payment. The system allows processing payment transactions, recording transactions, inventory updates, and various other things depending on the POS software features.

A POS terminal is usually a desktop, POS software, cash register, scanner, debit/credit card machine, and printer to facilitate a transaction. There are various layers to the concept of POS; let us start by taking a simple example.

  1. A customer decides to buy a product or service in a physical store. A sales associate now initiates the billing. The associate uses a barcode scanner to know the product’s price. When customers have completed adding items to their cart and click the checkout icon during online shopping, this step happens.
  2. The item’s price, inclusive of the sales taxSales TaxThe government levies sales tax on the consumption of various goods and services as the percentage added to the product and services from which the government earns revenue and does the company's welfare. In the United States, 38 different states have different taxes, from Alaska (1.76%) to Tennessee (9.45%).read more, is calculated by the POS system. And then, the inventory count is updated, indicating that the item has been sold.
  3. After that, the customer pays using a means of payment. Apart from cash, a customer can pay using a credit card, tap card, or debit card. Some stores offer payments using PayPal, loyalty points, and gift cards.
  4. Once the customer’s bank authorizes the transaction, the store receives the money. With this, the POS transaction gets completed.
  5. A digital or a printed receipt arrives as the payment goes through. After that, the customer is free to leave with the purchases.

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Features

Let us understand the features of installing a point of sale software and how it helps businesses with customer management and cash handling.

  • A business generates data on sales, returns, regular customers, high-selling products, seasonal preferences, low-selling products, reorder pointsReorder PointsReorder point refers to that stage of inventory management in which the inventory needs to be reordered to ensure the timely availability of goods for sales. It ensures that a business can have a minimum product quantity in storage to prevent operational disruptions arising out of a stockout. At the same time, the reorder point will stop holding stock beyond the safety point to avoid unnecessary storage costs.read more, low inventory, top employees, returning customers, etc. An efficient POS system will help compile this data to help the management make crucial decisions regarding inventory, marketing, employees, and customer relationship.
  • The POS database and software integrate all the data of a business. For example, a brand with its stores across different cities can compile all the data from its stores and warehouses using an efficient POS system or software.
  • The POS terminal comprises a server, a desktop, a credit/debit card swiper, a drawer for cash, and a printer for bills. One may choose a barcode scanner or other specific customizations based on the business type.
  • The POS installation company sets up your system, including all hardware and software. The staff usually undergoes training to be able to handle the system.
  • POS transactions occur in retail stores, restaurants, hospitals, hotels, online shopping, etc.
  • There are different POS systems such as counter POS, mobile POS, online POS, tablet POS, etc. Depending on whether one runs an online store, has a physical store, or both, one can decide upon the type of POS system.
  • A mobile or tablet POS will reflect that one can pay for purchase anywhere in the store or the restaurant without the need for wires. This portability is the result of a cloud-based POS system.
  • The cloud-based POS systems are advantageous over other POS systems as they process and store sales data online instead of locally on a computer server. They are often referred to as point-of-sale applications (apps) since they often find they’re used on mobile devices. Alternately, it is mentioned as an electronic point of sale (EPOS).
  • The market is full of different POS systems enabled with varying features. Apart from the basics of sales and inventory records, many are designed to help with report generation, customer relationship management, loyalty program, automation, reorder point, employee performance data, cost-cutting, and profit generation.
  • It is imperative to find one that suits your business. Although, experts have warned businesses and customers of POS fraud as card transactions are a magnet for cyber-attacks. In 2019, VISA discussed how malware tried to gather card details from a gas station POS system. As such, merchants must ensure a system that ensures data safety.

Examples

Let us understand point of sale systems with the help of a few real-life examples as discussed below:

  • There are plenty of real-life examples of POS. We pay for an online shopping order on Amazon due to the POS software.
  • With cashless drives and the Covid-19 pandemic, the global electronic POS market will reach 2 Million Units by 2027.
  • POS at a café, bar, and hotel is a common sight. Sometimes, it’s a payment counter for billing. Other times, it is a cloud-hosted POS software such as Toast POS, allowing payments on mobiles and tabs.
  • Other common examples include hospitals, gas stations, retail stores, salons, etc. The salon POS comes with scheduling and appointment facilities.
  • Many merchants allow for POS financing as well. POS financing is usually taken while purchasing expensive items such as a diamond ring. Using POS financing, one can pay for the purchase in EMIs. Forbes lists Affirm, Afterpay, and Klarna as some popular sources of POS financing.
  • Square, TouchBistro, Poster POS, and Vend are some famous point of sale systems or software. Vend is a hybrid version of web and mobile.

Advantages

Using a point of sale system increases business efficiency. Recent developments in digital technology have made POS systems integrate with other business tools. It has the following advantages for businesses:

  • Involves sales and inventory tracking, thereby providing insights into your daily-based revenue. It lets you know when to reorder your stock.
  • Analyses customer, sales, employee, and inventory data and presents them as reports. For example, one can identify the highest-selling items that can be marketed well for further sales and remain in stock.
  • It can help with customer communication and relationships. For instance, having updated information on regular buyers helps create a loyalty program to generate more profit from them.
  • It saves time on managing the company’s paperwork due to automation. It also saves wastage and cost.

Frequently Ask Questions (FAQs)

Here are the most frequently asked questions on the point of Sales (POS)

What is a point of sale transaction?

A point of sale transaction occurs when a customer pays for a purchase in a store using cash/card/mobile or online shopping using net banking or payment gateway.

What is a point of sale system?

A point of sale system is where a customer makes the payment. For example, a POS system could be the payment counter, online shopping checkout page, self-payment kiosk, mobile POS, tablet POS, etc.

What is a cloud POS?

A cloud POS is a web-based POS system that allows you to process payments through the internet. Cloud-based POS systems support all payment transactions and updates online and store data in the cloud, rather than holding on to your local computer.

This has been a guide to What is Point of Sale and its meaning. Here we explain how the POS software system works along with examples and features. You may also have a look at the following articles to learn more –