What Is a POS System And How Does It Work?

The modern POS (Point of Sale) system can reduce transaction times by up to 30%. Moreover, these devices are more than just cash registers. They connect to a centralized system, enabling all-in-one business management, including real-time inventory, employee, and customer relationship management. These systems reduce errors, enhance the customer experience, and provide valuable insights for decision-making.

The origins of POS systems date back to the 1970s, to the "Ritty's Incorruptible Cashier." It was one of the first cash registers that automated simple transactions. Then, the technology evolved with the introduction of barcodes in the 1980s. The modern form now features remote data access, real-time analytics, and AI-driven features to enhance efficiency. This article will explain POS systems and how they work. Highlight key features to look for in POS systems. Let's begin!

What Is a POS System?

Definition and Core Components

Everyone has experience going to a retail store. After selecting the items to purchase, the customer moves to the exit, where a cashier registers the items and assists with the purchase. The machines the cashier uses to calculate the total amount, print receipts, and scan/swipe cards are part of the POS system.

By definition, the POS system is a combination of hardware and software that processes sales transactions at the point of purchase. In simple terms, the hardware of a POS system includes displays, processors, and peripherals such as scanners and printers. These devices enable the collection of real data. Then there is the software, which constantly communicates with the main computer to update inventory and payments in real time. So there are the following core components:

✔️The Core System

✔️ Transaction & Payment Peripherals

 ✔️ Input & Output Devices

Types of Businesses That Use POS Systems

The POS system is useful for any location that requires transactional services. These systems are usually installed in places like:

Key Distinctions from Traditional Cash Registers

It's important to differentiate POS systems from regular cash registers. The POS system is a combination of high-tech devices that work with lightning speed to perform multiple processes simultaneously. These devices operate digitally and report in real time on purchased items, building a database. Moreover, they offer multiple payment methods, including credit cards (EMV Chip), contactless NFC payments, digital invoicing with QR codes, gift cards, and cash.

Purpose of a POS System

We have touched slightly on the purpose of POS machines in various types of businesses. To fully understand its purpose

How Does a POS System Work? Step-by-Step

We can break down how the POS system works into a simple step-by-step process. Understanding the process can help you see how the POS system works:

Step 1: Scanning Items and Totaling

The first step is the scanning of the items. Let's consider a retail store like Target, Walmart, or Best Buy. The customer walks to the counter with the POS machine. The cashier scans the items using a barcode scanner. The POS system quickly checks the barcode against inventory data and provides the item name and price. It simultaneously calculates the total price, applies taxes, discounts, and promotions. Throughout the process, in a dual-screen POS system, the customer can use a separate screen to monitor all transactional data in a user-friendly interface.

Step 2: Initiating Payment & Authorization Request

The second and most crucial step, which begins after the customer agrees to the total and selected items for purchase, is initiating payment. The POS system will include a variety of payment methods (cards, cash, NFC, etc.). POS encrypts the payment data and sends it to the secure payment gateway. POS sends the encrypted transaction details (amount, card number, expiry date) to the payment gateway. The request goes to the bank for authorization. Bank verifies the funds/credit and sends an approval or a decline response.

Step 3: Payment Processing and Receipt Generation

After the bank's approval, the message is returned to the POS system. All of this process requires an internet connection. A faster networking hardware for POS will result in quicker responses.

Then, a fund settlement request is initiated, transferring the amount from the customer account to the merchant account. The process takes 1-2 business days. After that, the POS registers the transaction as complete. The receipt printer prints the receipt, which is usually a thermal printer for efficiency. This process takes around 2 to 5 seconds, depending on the internet speed.

Step 4: Post-Transaction Updates to Inventory and Records

The POS automatically deducts the sold item from stock immediately after transaction completion. It also logs the sale in the customer's profile and syncs the data to the cloud in real time. As mentioned earlier, it also triggers inventory-based triggers.

Step 5: Integration with Backend Systems

Data collection enables businesses to generate daily sales reports and monitor market trends. It is all done through software that integrates with the POS systems. The network connects to the ERP (Enterprise Resource Planning) software, which enables comprehensive business planning. Moreover, it shares customer data with the CRM (Customer Relationship Management). The data flows seamlessly across platforms via WiFi or LAN connections.

Step 6: Cloud vs. On-Premise Operations

Finally, the data generated by the POS system is either stored in the cloud or on a local server with offline capabilities. Some POS systems will have hybrid models that allow both online and offline access, with backup. The use of cloud operations is rising owing to the massive internet networks and automatic updates. However, in areas with unreliable internet, the hybrid model works best.

Necessary Hardware and Software to Set Up a POS System

Now that we know how the POS system works, we can see why we need specific software and hardware to complete the setup.

Necessary POS Software

Necessary POS Hardware

Features to Consider in POS Systems

To achieve a high customer satisfaction rate, it is critical to ensure a fast, efficient POS system. In this section, we will analyze the features that enable a quick, high-performing POS system.

Ensuring that the hardware can handle fast transactions without slowing down any software interface is key. It needs a high-performance, touch-sensitive screen. Moreover, the processor needs to be strong to handle the processing load. It should have comprehensive connection capability, either wired or wireless. Here are some aspects to consider in POS system hardware:

Moreover, consider that the POS system comes with the latest operating system. Windows, Linux, or Android. The POS system should support PCI DSS-compliant encryption, NFC, MSR, fingerprint, and QR code. Moreover, the POS system should be able to efficiently run an integrated Open API for CRM, ERP, and e-commerce sync.

For safety, consider auto-backups and offline mode with a large storage capacity. Search for compliance with PCI DSS and ISO standards.

Conclusion: Choosing the Right POS System for Your Needs

Business owners who need to speed up their transactions and increase their customer satisfaction, POS systems are the right solution. They offer extensive features that hasten all the steps from scanning, calculating, payment, and data management. It can provide useful insights into the business, like sales trends and inventory management. However, before making a purchase, consider business size, hardware requirements, software compatibility, and budget. If your software is light, go for light systems. Consider ROI for efficiency.

If you are looking for high-end POS systems with comprehensive OEM/ODM services, then consider TCANG. Their services include customization, prototyping, testing, installation guidance, and ongoing training/support to streamline business deployment. Visit the TCANG website to learn more.