What Is a POS System?

A point-of-sale (POS) system is the combination of hardware and software that retailers use to process in-store payments.

Originally, POS machines were only designed for card-based sales. Modern point-of-sale terminals (and software) can now handle a much wider variety of payments — including those made via gift card, reward card, debit card, ACH, smart devices, wearable technology, and even cryptocurrencies like Bitcoin.

 Clover Station POS System Das BBQ

Today’s POS systems also do a lot more than process payments. They can help with:

  • Inventory management – know when and what to order
  • Employee time clock – track hours, log time off, simplify payroll
  • Customer purchase history – offer promotions for the products they love

In this article, we’ll explore the nuts and bolts of this payment technology, including:

Who Should Get a POS System?

If you want to process electronic payment transactions at the point of sale (i.e., cash register) and manage your business operations at the same time, you should invest in a POS system.

This basic need applies to most brick-and-mortar retailers and restaurants. However, gas stations, hotels, and hospitals can all benefit from having a POS system. Even nonprofit organizations, such as charities and churches, can leverage POS technology to help them collect card-based donations.

However, you probably don’t need a POS system if:

  • Your business relies exclusively on cash or personal checks. A basic cashbox should be enough.
  • You’re solely an online merchant. That’s because all credit card details pass through a secure payment gateway — which is just the online equivalent of a POS machine.
  • You run a mail order or telephone order business in which you process payments from your computer using a secure virtual terminal.

How Has a POS System Changed the Way Credit Cards Are Accepted?

There was a time when a merchant had to look up a customer’s credit card number in a monthly-issued book to confirm its validity. Then, the merchant would physically imprint a copy of a customer’s credit card onto a carbon slip. These slips were mailed to the card-issuing banks to be processed. The funds were then deposited into the merchant’s business banking account.

Alternatively, if a purchase was above a certain amount, a merchant could call the customer’s card-issuing bank for an authorization.

Either way, the process was very slow and/or risky.

Modern POS machines, by contrast, can communicate electronically with a payment gateway that encrypts cardholder data and sends to the payment processor. The payment processor notifies the card-issuing bank and the transaction is either approved or declined. The payment processor communicates this back to the gateway to alert the POS system of the authorization.

What Can a POS System Do for a Small Business?

POS systems today do a lot more than just process payments. With the right POS system, you can attract more customers and keep them coming back. Offering more payment options, loyalty programs, and frictionless buying experiences to your users will help you generate more potential sales.

Another benefit is speed — something to which we’ve already touched upon. The fastest and most efficient way to process electronic payments is within the POS system you use to run your retail or restaurant storefront. Since the POS system handles both your business data and payment environment in one system, processing time is quicker versus using a credit card terminal, payment gateway, or virtual terminal. The result is:

  • Shorter lines
  • Happier customers
  • More sales

Modern POS software can also help you save money and time by putting many important tasks on autopilot — from bookkeeping to inventory fulfillment to customer relationship management.

Instead of keeping these records updated by hand, you can set up your POS system to automatically populate all of your business software every time there is a new sale, refund, or return.

Alternatively, your POS system can help you analyze your transaction data and help you identify:

  • Busiest/slowest times of the day, month, or year
  • Targeted audiences for email marketing campaigns
  • Best-performing offers by touchpoint (email, text, snail mail)

How Does a POS System Differ From Other Payment Technology?

POS technology has evolved significantly over the years, with new features and options emerging all the time. Here’s a good rule of thumb for all in-store payments:

  • Cash registers are designed for sales made via check or money, but they may or may not be connected to your business management software system. This means that they don’t automatically integrate with inventory, billing, or accounting programs. If you have to manually enter all of your credit card transaction data into your accounting program, consider how much time this takes on a daily basis. Manual entry also leaves room for errors, thereby taking up more of your time to fix them.
  • POS solutions are designed for everything else. In addition to payment processing, POS systems are designed to do a lot more to help you run your business faster, smarter, and more efficient with comprehensive data at your fingertips.

Yet even with this broad definition, POS systems come in many shapes and sizes.

For example, traditional swipe-and-sign POS terminals sit on a merchant’s counter and only process credit card transactions outside the cash register. This used to be the standard, but now POS systems are cloud-based. They may be fully inclusive with a monitor, cash drawer, and barcode scanner, or as simple and portable as a tablet. It just depends what your business needs.

Unlike a traditional POS terminal, a cloud-based POS system combines both payment processing and software to enable you to access information easier and run your business smarter from any device with an Internet or data connection.

Even if your sales teams travel off-site, mobile POS solutions allow you to take your business on the road — accepting magstripe, chip, and NFC payments everywhere you go.

Some POS system providers even offer their own app markets, which allow you to sync information from your system with the apps on your smartphone or tablet.

In addition, modern POS solutions are “greener” than their predecessors, since they don’t have to output printed receipts for customers or merchants. Instead, confirmations can be sent electronically to both sides of every transaction.

 Florist using Clover POS System

How Do You Choose a Reliable POS System Provider?

All POS systems provide the same basic function — i.e., processing card-based payments. This allows you to generate more sales for your business.

Because POS technology is so widespread, it is important to have a clear understanding of what your business’s payment needs are now, but also keeping in mind that you’ll need a solution that can scale with you as your business grows. The better you can define your long-term needs, the easier your job becomes when it’s finally time to start interviewing POS system providers.

The right point-of-sale solution should also help you:

  • Reduce fraud
  • Save time
  • Control costs

As you begin shopping for POS machines and software, keep the following three questions in mind:

1. How Do They Handle Payment Security?

Minimally, every POS system should be PCI-compliant and follow the latest data security guidelines for card-based payments.

Don’t stop there. Make sure that your POS terminal provider also offers other fraud management tools, including:

2. Do They Offer Payment Integration?

Any POS machine that can’t communicate with the rest of your business means more work for you. You’ll have to manually update all of your records every time there’s a new sale.

As already mentioned, payment integration can put this recordkeeping on autopilot — saving you valuable time (and money). With detailed reporting, payment integration also allows you to analyze the health of your business — in real time.

3. What Do They Charge for Their POS Solutions?

Because all credit card solutions carry certain fees, many business owners start with cost in an effort to save money. That said, finding lower processing rates means nothing if the POS solution you choose doesn’t protect you from fraud or save you time.

Cost is still important, but it shouldn’t be your primary concern. Remember that you can often negotiate (or even eliminate) certain fees — depending on your unique needs.

For example, buying a POS machine is sometimes more cost-effective than leasing one. Additionally, keep in mind your business’s needs. You don’t have to purchase or lease a full-service POS system if all you need is a mobile card reader paired with your business’s existing smartphones or tablets.

At BluePay, we specialize in PCI-compliant POS solutions for merchants of all types and sizes. We even have industry-specific payment solutions designed for:

If you’d like to learn about our complete suite of PCI-compliant POS software and hardware, schedule a free consultation with our payments services team today.

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