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What is a Point of Sale System? The Definitive Guide

What is a Point of Sale System? The Definitive Guide

Most of you are familiar with point of sale (POS) systems, even if you don’t realize it.

A POS system is a suite of technology used by retailers and restaurant owners to accept payments from customers, among other tasks. Collectively, it’s the software and hardware that a retail business needs to run their business. From ordering and managing inventory to processing transactions to managing customers and staff, the point of sale is the central hub that helps retailers run and grow their businesses. 

POS systems have enabled anyone, from business-savvy entrepreneurs to artisans who want to turn their passion into their profession, to open a retail store and grow. So let’s get into answering your burning POS questions.

  1. What is a POS?
  2. What is a POS system?
  3. What is a mobile POS system?
  4. What hardware does a POS system need?
  5. What is a POS transaction?
  6. What are a POS system’s key features?

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What is a POS?

POS is an abbreviation for point of sale, which refers to any place where a transaction can happen, whether it’s for a product or service.

For retailers, that’s usually the area surrounding their cash register. If you’re at a classic diner, where you pay a cashier instead of giving your money to a waitress, that area by the cash register is also considered the point of sale.

If you have a mobile POS, your entire store effectively becomes a point of sale (but we’ll get to that a little later).  


What is a POS system?

The first concept to understand about a POS system is that it consists of point of sale hardware and point of sale software. Together, these two components give merchants all of the tools they need to accept popular payment methods, as well as manage and understand their overall businesses. You use your POS to analyze and order your inventory, employees, customers and sales. 

Traditionally, legacy POS systems were on premise, which means they used an on-site server and could only run in a specific area of your store. That’s why your desktop computer, cash register, receipt printer, barcode scanner and payment processor were all set up at your front desk and couldn’t be easily moved.  

In the early 2000s, a big technological breakthrough happened: the cloud. With the advent of cloud-based storage and computing came the next step in POS technologies evolution: mobility.


What is a mobile POS system?

A result of cloud-based servers was that retailers could start accessing their POS system by picking up any device with internet connectivity—whether a laptop, desktop, tablet or smartphone—and logging into their business portal.

A mobile POS system lets retailers manage their entire business from any device, any time. 

The democratization of great customer experiences

The impact on retailers was enormous. Being able to run their business, serve customers and process transactions from anywhere resulted in reduced lineups to pay and faster customer service. The customer experience that was once unique to big retailers like Apple was now available for everyone.  


Did you know that 80% of retailers that started using a mobile POS grew their sales?


Mobile POS systems also opened up a ton of new sales opportunities, like opening a pop-up shop or selling at trade shows and festivals.

What are the benefits of a mobile POS system? 

  1. Mobile checkout and payments
  2. Centralized inventory management
  3. Real-time access to sales reports
  4. Advanced customer data 
  5. Schedule and manage employees 
  6. Integrated payment processing
  7. Manage your business anytime, on any device, anywhere 
  8. Open up new stores, fast
  9. Customer relationship management capabilities


What hardware does a POS system need?

The hardware products you need can vary depending on your business type. We’ve listed the most common hardware used by the retailer, but keep in mind that not every business needs all of these products. 

  1. POS terminal
  2. Credit card reader
  3. Receipt printer
  4. Barcode scanner
  5. Cash drawer

1. POS terminal

A POS terminal is the device that the mobile POS software runs on. 

For old-school, on-premise systems, the cash register was the POS terminal. For the newer options, merchants can use either a desktop computer, laptop, tablet, or smartphone—any device with internet connectivity.

Many retailers opt to use tablets, like an iPad, with a stand that turns them into a countertop device. The advantage of this setup is in its inherent flexibility. Sales clerks have the freedom to pick up their tablet, look up inventory, access customer profiles and process transactions anywhere on the sales floor. 

2. Credit card reader

This is also referred to as a credit card terminal. It’s what merchants use to accept credit and debit card payments. 

There are three ways a credit card can accept payments:

  1. Reading the card’s magstripe (swiping the card) 
  2. Reading the card’s chip through an EMV (Europay, Mastercard or Visa)
  3. Using near-field communication (NFC) to accept payments from mobile payment providers like ApplePay

Most consumers prefer cashless payments. By 2025, Business Insider predicts that 75% of all transactions will be cashless. Why? Because cashless payments are typically quicker and more efficient, which leave the customer with more time to do their thing. 

Choose a credit card reader that:

  • Prints or emails receipts
  • Takes any payment
  • Offers POS-integrated payment processing

3. Receipt printer

While the majority of consumers now opt for email receipts, it’s still important to offer printed receipts. 

There are different types of receipt printers. 

Impact printer

Sometimes referred to as a transfer or dot-matrix printer, impact printers can use either wax, resin or an ink-soaked ribbon that comes in the form of a cartridge and drops into the printer (similar to ink cartridges in a computer printer) to print receipts and tickets. They are called impact printers because the print head makes an impact on the ribbon and against the paper to print the text and images.

Impact printers are most often used as kitchen printers because they can withstand higher temperatures without affecting the printing ability.

Thermal receipt printer

Sometimes referred to as a direct printer, thermal receipt printers use heat to imprint text or images against a special kind of paper. These are the most common types of receipt printers used at the point of purchase. They are quiet, fast, efficient and cost-effective since they use a direct heat source (rather than ink) to print.

Receipt printers can connect to a merchant’s POS terminal via USB or Bluetooth. Most POS system providers can also provide you with receipt printer paper. 

4. Barcode scanner

Retailers with a lot of inventory need a barcode scanner to help them manage, stock, and speed up their checkout process. Similar to receipt printers and cash drawers, you can connect a barcode scanner to and compatible POS terminal either by USB or Bluetooth.

There are different types of barcode scanners.

1D barcode scanners

A one-dimensional barcode scanner is used to scan linear Universal Product Codes (UPC) on consumer goods in a retail environment.

2D barcode scanners

A two-dimensional barcode scanner is used to scan more complex codes such as Data Matrix, QR Code and PDF417. The most common use in a storefront is scanning 2D barcodes on a driver’s license for age verification.

5. Cash drawer

To support customers who still want to pay cash, most businesses need a cash drawer. They generally come in several sizes to support all business types. Cash register trays are inserts that go into the cash drawer. They include numerous bill tray and coin tray compartments to store and organize different monetary denominations.

The number of bill and coin tray compartments will vary depending on the size of the cash drawer. Smaller cash drawers may only have four or five coin and bill compartments, while larger drawers may have six to eight compartments.

As with barcode scanners and receipt printers, most cash POS-compatible cash drawers can connect to the POS terminal either by USB or Bluetooth. 

Most POS system providers provide you with a list of compatible hardware and can get you set up with what you need with minimal hassle. With Lightspeed, you can get everything you need with our wireless hardware bundle


What is a POS transaction?

A POS transaction is the moment where a transaction is finalized or the moment where a customer tenders payment in exchange for goods and services. Any form of payment can be used, such as cash, debit cards, credit cards, mobile payments and even accumulated loyalty points. 

In order for a POS purchase to be completed, a PIN number, signature or for newer mobile payment technology, a fingerprint scan usually needs to be authenticated before an authorized transaction can be made. 

The authentication information from the PIN number or other security features then travels through the ATM networks until it reaches its destination–the issuing bank. At this point, the bank can either authorize it or deny it depending on the transaction type and the funds are available in the cardholder’s account. 

Some US states and counties, like California and Westchester County in New York, require a customer-facing display at the point of sale. This allows customers to see the price of each item before they pay.


What are a POS system’s key features?

POS software powers a POS system, and includes two parts: the cashier component and the business management component. Each is powerful and can transform the way you run your business.

Register software

The register software (or register application) is the cashier-facing part of POS software. It’s where the cashier will ring up transactions and the customer will pay for their purchase. It’s also where the cashier will perform other tasks related to the purchase, like applying discounts or processing returns and refunding money if needed.

Business management software

This part of the point of sale software equation either runs on a desktop PC as installed software or, in more modern systems, is accessible via any web browser. Business management software includes all kinds of advanced features that will help you better understand and run your business.

The business management side of modern POS systems can best be thought of as the mission control of your business. Because of this, you want your POS to integrate with the other apps and software you use to run your business. Some of the more common integrations include email marketing, accounting and eCommerce. With these integrations, you can run a more efficient and profitable business because data is shared between each.

A case study from Deloitte Global found that by the end of 2023, 90% of adults will have a smartphone that they use 65 times a day on average. With the internet boom and consumers adopting smartphones at an explosive rate, a host of new POS functionalities and features have emerged to help independent retailers offer the connected, omnichannel shopping experience that consumers love. 

Key features to look for in a retail point of sale:

  1. Omnichannel selling capabilities
  2. Integrated payment processing
  3. Customer relationship management (CRM)
  4. Inventory management
  5. Staff management 
  6. Multi-store management
  7. Advanced reporting
  8. Integrations and add-ons
  9. Ongoing support

1. Omnichannel selling capabilities

Customers habitually research products online before they ever step foot in your store. When they walk through your doors, the majority of them already have a good idea of the product they want. That’s the kind of omnichannel retail experience that customers have grown to expect.

Omnichannel shopping experiences start with having an easy-to-browse, transactional online store that enables them to research products. It ends with having an equally convenient in-store experience.

As a result, an increasing number of retailers have adapted to their clientele’s behavior by choosing a mobile POS system that allows them to run both a brick-and-mortar and eCommerce store from the same platform. 

This enables retailers to look up whether or not they have a product in their inventory, verify their inventory levels at multiple store locations, create special orders on the spot and offer either in-store pickup or direct shipping. 

As consumer technology evolves and consumer behaviors change, mobile POS systems are increasingly focusing on evolving their omnichannel selling capabilities and blurring the lines between online and in-store retail. 

The benefits of an omnichannel point of sale:

  • Sell both online and in-store 
  • Increased store visibility online
  • Customer-focused retail experience 
  • Multiple order fulfillment options
  • Synchronized online and in-store inventory

2. Integrated payment processing

Here’s a quick breakdown of how most people feel when they read a third-party payment processor contract:

Between managing an online store, brick-and-mortar store, order fulfillment, inventory,  paperwork, customers and employees, being a retailer is more complicated than it’s ever been. 

In an effort to make retailers’ lives easier, mobile POS system providers started taking payment processing in-house, officially removing complicated (and potentially risky) third-party payment processors from the equation.

The advantages for retailers are twofold. First, they can work with one company to help them manage both their business and its financials. Secondly, the pricing is far more straightforward and transparent than with third-parties. Retailers benefit from one transaction rate for all payment methods and no startup or monthly fees.  

The result is that retailers get to keep more of their money while removing any complexity associated with payment processing.

The benefits of POS-integrated payment processing:

  • Fixed transaction rate 
  • Built-in PCI compliance and fraud prevention
  • No third-party accounts required 
  • Centralized business financial information

3. Customer relationship management (CRM) 

Your POS CRM database allows you to create a profile for each of your customers. In those profiles, you can keep track of the following information: 

  • Payment information
  • Payment history
  • Favorite products
  • Purchase history
  • Shopping frequency

CRM databases also let retailers set up timed promotions (when a promotion is only valid for a given timeframe, after which the items on promotion revert back to their original pricing). 

Loyalty program add-ons

Some POS system providers also offer a mobile app-based loyalty program.

83% of consumers say they’re more likely to buy products from a business with a loyalty program—59% of which prefer ones that are mobile app-based. Surprising? Not really.

The use case for retailers implementing a loyalty program is simple: to show customers that you value their business so that they feel appreciated and keep coming back. You reward their repeat business with incentives like percentage discounts and other promotions that aren’t available to the general public. It’s all about customer retention, which is up to five times less expensive than attracting new customers.

Paired with a CRM database, loyalty programs enable retailers to take their customers’ purchase history and market them with relevant offers by email, social media or any other communications channel.

Why are CRM and Loyalty add-ons valuable? 

Scaling your loyal customers by as little as 5% can grow your sales by up to 75%


When you make your customers feel like their business is appreciated and consistently suggest products and services that align with their needs, you increase the likelihood that they talk about your shop with their friends.

Your customers become your shop’s ultimate cheerleader, speaking positively about you within their social circles and essentially attracting new customers for you.

4. Inventory management

This tool helps you understand all aspects of your inventory. That could mean anything from basic tracking of your stock levels to setting up reorder triggers, so you’re never short of a valuable inventory item.

The resources you spend on inventory can’t be used to grow your business, so it’s important to be smart about what and how much inventory you buy. 

Inventory is one of the most difficult balancing acts retailers face, but it’s also the most important thing to master as it directly impacts your cash flow and revenue. 

POS systems typically have robust inventory management functionalities that simplify how retailers purchase, categorize and sell their inventory. 

With real-time inventory tracking, retailers can trust that their inventory levels—both online and in their brick-and-mortar store—are accurate. 

To go along with real-time inventory management, there are a host of inventory management features in a POS: 

  • Special orders
  • Work order management
  • Layaways
  • Integrated vendor catalogs and purchase orders (POs) 

5. Staff management 

Modern point of sale systems can help you manage employees by making it easy to track hours worked and sales performance if applicable. This helps you reward your best staff and coach those who need the most help. It can also simplify tedious tasks like payroll and scheduling.

Your POS should let you set custom permissions for managers and employees. With this, you can control who has access to your POS’ back end versus those who can only access the front end. 

You should also be able to schedule your employees’ shifts, track the hours they work, and generate reports that detail their on-the-job performance (like seeing how many transactions they process, their average items per transaction, and their average transaction value). 

You can even generate end of day reports that detail your overall sales per employee, per shift. 

The best staff management features to look for: 

  • Schedule your employees
  • Monitor each employee’s performance
  • Assign specific user permissions 

6. Multi-store management 

One of the biggest advantages of a mobile POS is that it can support your business’s growth from one store to many. 

Consolidate your inventory, customer and staff management across all locations so that you can manage your entire business from one place. 

The benefits of multi-store management: 

  • Manage your physical stores and eCommerce store from in one place
  • Add stores, users and cash registers to your POS as you open new locations
  • Create a single purchase order (PO) for all locations
  • Access customer data across all locations
  • Transfer items between stores 
  • Compare store performance 

7. Advanced reporting

Outside of inventory tracking, reporting is one of the biggest reasons to purchase a point of sale system. These reports give you insights into all aspects of your business to help you make smart decisions that improve your efficiency and profitability. This could mean anything from identifying your best and worst performing sales people to understanding the most popular payment methods (credit, debit, check, mobile, etc.), so you can create the best experience for your shoppers.

These intuitive sales, inventory and employee reports let you turn insights into action and help you run your business smarter. 

A mobile POS should offer a variety of preset reports that give you insight into your store’s hourly, daily, weekly, monthly and yearly performance. 

Armed with that information, you can reduce labor costs, increase your inventory’s return on investment (ROI), predict high-volume sales periods, identify your star employees and much more. 

8. Integrations and add-ons 

Integrations and add-ons extend the functionality of your POS beyond its core features.

Check your POS app marketplaces to find add-ons and integrations for: 

  • Inventory management
  • Accounting
  • Scheduling 
  • Payroll
  • Warehouse management
  • Order fulfillment
  • Marketing

And much more. 

9. Ongoing support 

Even if your POS is intuitive and easy to use, you’re bound to get stuck and have questions at some point. And when you do, you’ll want 24/7 support to help you fix issues fast. 

POS system support teams can typically be contacted via phone, email and live chat. 

Along with on-demand support, consider whether or not the POS provider has supporting documentation like webinars, video tutorials and support communities and forums where you can chat with other retailers using the system. 


Which POS is right for your business? 

The POS you choose has a big impact on how you run your business day-to-day, and how you grow your business year after year. 

There are a lot of options out there. We’ll help you find the right POS for your business. Talk with an expert to start the conversation. 

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