Be it a small or large-sized business, every business has to manage a proper bookkeeping record to analyze and evaluate its performance.Years ago, people dedicated their time and effort to managing finances. But in the modern world, bookkeeping has become digitized, like everything else. With a Point-of-sale(POS) system, you can do much more than accept front-end transactions in retail shops. You can also manage finances and sales and streamline cash flow.

In this article, we will discuss how a POS system works and how it affects your business. But first, let’s get into the basics.

What is a Point-of-SaleSystem?

A POS system provides a place where a retailer accepts the payment for the product bought by the customer, and a receipt is provided. Simply put, it providesa place for a business transaction. Years ago, POS systems were only capable of simplifying transactions in retail stores by accepting digital payments like credit and debit cards. But nowadays, you can manage your business on the go.

ePOS or Cloud-POS systems enable customers to pay using their mobile phones. Moreover, aside from retail, POS systems also sync in your online store so you can simultaneouslymanage inventory, customers, and finances, both online and offline, to reduce error and time.

POS systems have evolved and allow you to now manage your whole business from anywhere in the world.

If you arenot sure how it works. Read on to learn about its components and working.

Software and Hardware Components of a POS System

Point of Sale

A POS system comprises multiple hardware components and software. The software determines what type of POS system you are using, and features will vary accordingly.


There are many types of Point-of-Sale (POS) systems available, but the software is generally divided into two categories:

On-site POS System

On-site, also known as on-premise, POS systems are systems in which the software is installed on the server computer in your retail store and can be accessed from these computers. The software has to be bought, licensed, and installed with the help of a professional.

Moreover, since the software is locally installed, it needs to be managed and monitored daily. On-site POS systems are not popular nowadays as they are expensive, require monitoring, and are limited in their flexibility.

Cloud-Based POS System

Working on the SaaS model, the cloud-based POS system packs more features and technology as compared to on-site POS systems. Since the software is stored in the cloud, a cloud POS system enables business owners to manage their business anywhere and on any device.

The software is routinely updated by the POS service provider, and you are always using the latest version or benefitting from advanced features. They are also cheaper and easier to monitor than on-site POS systems.


The POS hardwareis important for a retail store, although not necessary if you are running your business online.


A display is an interface for the POS system software where employees can checkin, view their performance, sales of the day, product catalog, and more. This could be a monitor or tablet.

Card Machine

A card machine helps in processing transactions made by a credit or debit card. Depending on the software installed, you either need a SIM card if it’s a normal card reader or Wifi for connection if it’s a cloud-based software.

Cash Drawer

A cash drawer is used to store the cash, receipts, or other necessary documents throughout the day.

Barcode Scanner

Barcode scanners are versatile devices that are used atthe checkout counter, around the store, and in inventory. A short-range barcode scanner can only be used in a cash counter, where it also manages the inventory. In contrast,a portable barcode scanner can be used throughout the store for stocking, providing information, and increasing the store’s efficiency.

Receipt Printer

A receipt printer is also used at the cashier counter, where you can print bills and transaction receipts for customers’ orders. You can also print out daily sales logs and other documents.

Signature Capture Devices

Signature capture devices enable your customers to make digital contactless transactions using their debit/credit card or mobile phones. They also capture your customer’s signatures to verify their payment and reduce fraud.

To tie it all off, you also need network devices to connect your hardware with the Point-of-Sale(POS) system software.

HowPoint-of-Sale (POS) Systems Work

How POS systems work

As mentioned above, A POS system provides a place forthe transaction. A transaction requires the use of both hardware and software components if completed in the retail store.

The procedure starts when customers bring their selected items to the cash register. Here the cashier will use the barcode scanner to identify all items, their prices and catalog them to create a total for the customer. On the backend, the software automatically adjusts the inventory to reduce the chances of any errors.

Once the total rings up, the customer has to choose their preferred payment method, including cash, card, or mobile. For example, if a customer chooses the mobile payment method, the signature capture device will be used. The customer will scan their mobile app and complete the purchase. On the backend, a profile for the customer will be created if they are shopping for the first time to add points and use the information for marketing purposes.

Once the payment is processed, a receipt will be generated using the receipt printer. Lastly, on the backend, the sale will be saved in the present employees’ profiles to manage their performance records.

And that’s it! No matter what software and POS system you are using, the step-by-step approach is the same, although additional features can vary.

Features of a POS System

Depending on the POS system you are using, the features can vary, but the key features of every POS system remain the same. Let’s discuss these in detail.

Inventory Management

One of the major benefits of a POS system is that they sync in the online and retail store and merge and manage inventory across both channels, so you never run out of stock. A POS system records and catalogs each store item, provides them a unique code, and manages inventory automatically when a purchase is made or a product is returned.

You can alsoseparately manage inventory for each product variation. Moreover, a POS system enables you to automatically request re-stocks if the inventory is close to going out-of-stock.

Customer Management

Retaining customers is the goal ofevery business. A POS system brings this goal to fulfillment by enabling you to use your system as Customer Relationship Management (CRM). Through a POS system, you can create individual customer profiles and introduce a loyalty program.

When a customer purchases from your store, a profile will automatically be created. The loyalty program, like SkyRewardz will count orders as points and enable customers to use their points to get rewards like a discount, free delivery, or coupons.

A loyalty program also gives you an insight into customer shopping behavior and targets customers based on their liking and order history.

Employee Management

A POS system also manages your employees and analyzes their performance. Each employee is added to the system and gets a profile. Employees have to log in when they start their shift so their work throughout the day can be recorded.

You can track working hours, the number of sales, and successful conversions. Store managers can also send working schedules to employees on their portal and analyze their top employees and those that need more training.

Third-Party Integrations

Advanced POS systems can integrate third-party plug-ins into your system. This will help you enhance the features and provide convenience to your customers. You can opt for plug-ins like CRM, email integration, online ordering, coupon code generator, and much more. Before choosing a POS system for your business, check if it accepts integrations.


Through sales reporting, POS systems are able to completely manage your store. You can track and analyze your store’s overall performance by monitoring key metrics and sales. A POS system provides detailed reports of total sales, revenue, and net profit.

You can also get detailed reports regarding employee working hours, performance, and the number of items sold. It also enables you to track the ROI of your current marketing campaign, so you can make relevant changes.

Payment Methods

The reason POS systems have taken over traditional cash registers is that they provide multiple payment methods to their customers, thus simplifying the shopping and payment process. By offering customers options like cash, credit card, debit card, mobile wallet, and other contactless payment methods, you can increase the store’s efficiency. Keep in mind that customers always opt for a store that prioritizes their convenience.

In the grand scheme of managing a business, a POS system might seem insignificant. But that’s not true. A POS systemsimultaneouslymerges multiple store channels, both online and retail. It also performs multiple backend operations for your store, such as inventory, customer satisfaction, and employee analysis. Having a system that is fully dedicated to your business can help you analyze key metrics of your performance and give you an insight on how to improve them.

A POS systemgreatly reduces the time, effort, and money required to manually manage a store.