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What Is a POS System and How Does It Work?

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Ryleigh Stangness | April 5, 2021

“What is a POS system? How does it work? Our guide will help take the guesswork out of choosing between POS hardware and software options.”
10 min read
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    Last Updated on June 4, 2024 by Robert Luong

    What is a POS system?

    A POS system (Point of Sale) is an essential tool for many businesses to process transactions. The term "POS" refers to where sales occur, while a "system" encompasses the hardware and software used to facilitate these sales. Together, a POS system processes payments in person, online, over the phone, via email, or through SMS.

    Is a POS system the same as a Cash Register?

    Mechanical cash registers that simply add up prices, store cash, and print receipts are not POS. A POS system is more advanced. It integrates both hardware and software to offer functionalities that go beyond simple transaction processing. With a POS system, businesses can scan barcodes, manage inventory, track customer information, create discount codes, and much more.

    Do I need a POS system?

    Overall, you need a POS system because it offers an all-in-one solution to process payments and operate your business across various sales channels.

    For brick-and-mortar businesses, traditional cash registers require third-party software for inventory management, CRM, data reporting, etc. A POS system overcomes these limitations by integrating these essential tools into one solution. Many POS systems offer advanced features such as rostering, kitchen displays, and floor plans, making them ideal for retail and restaurant operations.

    Also, businesses are expanding into online channels. Without a POS system, sales and inventory data can become fragmented, making it difficult to access up-to-date information quickly. POS systems also provide payment solutions for online businesses and professionals. Instead of relying on bank transfers or checks, businesses can use digital tools like online POS, digital invoicing, and email/SMS payment requests to collect payments worldwide.

    What are the different types of POS systems?

    Different types of POS systems

    There are several POS options, each designed to meet different business needs and suited for various industries. Before exploring each option, answering the following questions will help you understand your business needs and identify the suitable POS system.

    • What type of business do you operate? (retail, restaurant, service-based, online, etc.)
    • Do you need to manage inventory?
    • Do you need other software like accounting or CRM to run your business?
    • What is your budget for setting up and maintaining a POS system?
    • Do you need mobility to bring your POS to different locations (pop-up shops or events)?
    • Does your business have stable internet connections?

    Traditional POS system

    Traditional POS systems are the classic, hardware-heavy setups commonly seen in supermarkets or fast food chains like McDonald's. These systems are installed on-site with local servers to store all sales and transaction data. The advantages of this system include high customization to fit the specific operation and the ability to function without an internet connection.

    However, they are expensive to set up and maintain because the POS hardware and software need to be customized to work seamlessly together. Also, all the data is stored locally, so you’ll need to manage the backups and security.

    Cloud-based POS system

    Cloud-based POS, also known as web-based POS, is a cost-effective and easy-to-use option. Unlike traditional POS, a cloud-based system stores all your sales and transaction data on the provider’s online servers. This removes the need to invest in local servers and security management. Also, updating a cloud-based POS system is straightforward—just download and install the latest update.

    Because everything is online, you can run your business from anywhere. All sales data is synced and updated in real-time, making it accessible for reporting, regardless of whether you have brick-and-mortar stores, online shops, or invoicing channels. Cloud-based POS systems also integrate with other software like accounting and customer relationship management (CRM). For example, Helcim can access built-in CRM and inventory management tools at no extra cost.

    Computer POS system

    Computer POS is a cloud-based POS system. But, instead of requiring extensive hardware, you only need to download the POS app on your device and connect a card reader to start accepting payments.

    The POS app typically includes tools for tracking inventory, managing customer data, and generating reports. This type of POS is perfect for businesses that lack counter space, such as clinics, food trucks, pop-up shops, and small boutiques. You can take your laptop or mobile phone anywhere, making it easy to set up shop at various locations and events.

    Online POS system

    Online POS, also known as a virtual terminal, is a cloud-based system for businesses that primarily operate online and don’t require any POS hardware. With a virtual terminal, you can enter card or bank information on your device and process payments over the phone. After the first transaction, the customer’s information is securely saved in the system, allowing for quicker future transactions with repeat customers.

    Helcim users also gain access to invoicing tools that enable payment requests via email, SMS, and QR codes, providing additional options for charging customers online.

    How much does it cost to implement a POS system?

    The cost of implementing a POS system varies based on your business needs and the type of POS system you choose.

    For businesses that require traditional POS systems, such as retail stores or restaurants, you'll need various hardware components like cash registers, barcode scanners, receipt printers, and card readers. The total POS hardware cost can range from $600 to $4,000. Additionally, server costs can range from $2,000 to $5,000 for purchasing a server or $70 to $300 or more per month for renting one. Installation fees for traditional POS systems can reach up to $500.

    In contrast, cloud-based POS has similar hardware costs but there is no cost for a server because data storage and security are managed by the provider's server. Setting up a cloud-based POS is simple and free - simply download the POS app and connect hardware like card readers via WiFi, USB, or Bluetooth. Monthly subscription fees for POS software range from $0 to $200.

    How does a POS payment work?

    1.Customer is ready to purchase

    When the customer arrives at the counter with their items, the cashier can scan each item's barcode using a scanner. For service-based businesses or when items don't have barcodes, the sales associate can manually select the item in the POS system.

    2. POS system calculates the total cost

    The POS system calculates the items’ total cost, including any taxes and discounts. The final amount due is displayed on the card reader and the merchant’s monitor.

    3. Customer completes the payment

    The customer selects their preferred payment method, such as cash, credit card, or debit card. For card payments, the customer can swipe, insert, or tap their card on the card reader.

    4. Print receipts and finalize the transactions

    Once the payment is successful, the POS system prints a receipt. You give the receipt, products, and change (if paid by cash) to the customer if they pay by cash. The transaction is now finalized. If the POS includes inventory management, the system updates the inventory count to reflect the sale.

    What hardware is required for a POS system?

    POS system hardware

    For in-person transactions, a POS system usually requires both software and hardware components. Depending on your business, here are some hardware options you may consider:

    • Monitor or tablet: If you don’t have a monitor, a tablet with a stand works just as well.
    • Barcode scanner: It scans items for checkout but can also help verify prices, check inventory, and other information. Make sure you check if your desired scanner will work with your system - they are not universal.
    • Card reader: It lets you accept debit and credit card cards via swipe, tap, or insert.
    • Cash drawer
    • Receipt printers

    In industries such as restaurants and bars, customers often still pay with cash, and food or drinks typically don’t have barcodes. So, the POS hardware for these businesses may not require a barcode scanner.

    If your business lacks counter space or you don’t want to invest too much in hardware, you can install the Helcim POS app and transform your laptop, computer, tablet, or phone into a POS station. Simply connect the Helcim card reader to your device to start processing payments.

    The Helcim Smart Terminal comes with a built-in POS app and receipt printer, allowing you to process checkout, track inventory, and print or email receipts all from one device. This device is especially useful for businesses where staff need to bring the card reader to different areas of the store.

    Can I accept payments without POS hardware?

    Modern POS systems are no longer confined to checkout counters or even reliant on physical card readers. As an example, with the Helcim Virtual Terminal, our merchants can process payments entirely online or over the phone.

    Using a Virtual Terminal: A virtual terminal allows you to enter a customer's credit card or banking information to process transactions from any internet-connected device. Here’s how it works:

    1. Enter Payment Details: When a customer is ready to make a purchase, you simply enter their credit card or banking information into the virtual terminal.
    2. Securely Save Information: After the first transaction, the customer’s information and payment details are securely saved in the CRM (Customer Relationship Management) system and card vault.
    3. Efficient Future Transactions: For subsequent transactions, you can access the saved payment information, making the payment process quicker and more efficient.

    Alternative Payment Methods: If your customer is hesitant to provide card information over the phone, you can use other tools like sending them an invoice with a payment link, or sending them to a payment page. This flexibility in payment processing allows you to meet the needs of various customer preferences and maintain smooth operations without the need for extensive hardware investments.

    What features should your POS system have?

    Modern POS systems go beyond just processing transactions; they offer a range of features that help streamline business operations. Here are the key features your POS system should have:

    Payment processing

    The core function of any POS system is to process payments. A robust POS system should handle multiple payment methods, including:

    • Cash: Enter the amount received, and the POS system calculates any change due.
    • Credit and Debit Card: Customer swipes, inserts, or taps their card on the card reader, and the POS system processes the transaction.
    • Mobile Payments: Accept payments via Apple Pay or Google Wallet.
    • Online Payment: Process payments from online checkouts and invoices. Just know that the processing fee may be higher than “card present” transactions.
    • ACH Payment: Collect funds directly from customers’ bank accounts. (Hint: It’s way cheaper than credit card payments.)

    Inventory management

    A good POS system should provide real-time inventory management, syncing data across all sales channels. This feature helps you avoid overstocking and running out of stock by keeping track of inventory levels automatically.

    Reporting

    The reporting feature offers insights into your business performance. It shows top-selling items, revenue generated, and profitability of different products. This data helps you make informed decisions about reinvestment and marketing strategies.

    Customer relationship management (CRM)

    A POS system with CRM capabilities stores customer information, including contact details, billing and shipping addresses, tax preferences, and payment methods. This allows for faster processing of repeat transactions and helps in sending invoices and follow-ups.

    If you’re using Helcim, the customer’s card information is securely stored in the Card Vault, with tokenization ensuring sensitive data is never directly handled by your system.

    Tipping

    For businesses where tipping is common, a POS system should allow you to set up tip suggestions (e.g., 10%, 15%, 20%) and enable custom tipping options for manual entry.

    Print and email receipts

    After a transaction, the POS system should generate receipts that can be printed or emailed. Helcim allows customization of receipts to match your brand, including text font, background color, and specific details like your business tax number.

    Custom discount

    Your POS system should allow you to create customizable discount codes, either percentage-based or fixed-amount. You should be able to apply these discounts to specific customers or products and set usage limits.

    Online payment tools

    Modern POS systems should support online payments, offering tools like invoicing, virtual terminals, and SMS/email payment requests. For businesses operating online or selling high-ticket items, these tools are essential.

    Helcim’s payment page allows you to add a checkout page to your website without programming skills. Additionally, the Helcim subscription manager can create custom plans to collect credit card and ACH payments automatically, ensuring timely payments and a predictable income stream.

    How to upgrade my POS system?

    If you’re still using a traditional POS system that requires a physical server, you might be missing out on payment tools that cloud-based POS offers.

    Unlike traditional legacy systems that take up a lot of counter space and are expensive to install and upgrade, a cloud-based POS system is more cost-effective and easier to update.

    For example, whenever the Helcim POS needs an update, you’ll receive notifications to download free updates at your convenience, or you can enable automatic updates. This means you’ll never have to worry about spending thousands of dollars on POS upgrades again.

    If you have any questions about switching to cloud-based POS, our team is here to help you get started!

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