What is a POS System and How Does it Work?

Although there is a significant number of eCommerce websites appearing regularly, it doesn't mean retail is taking a back seat. According to Zippia, global retail sales are valued at $26.7 trillion as of 2022. 

So you shouldn't hesitate to create a retail store, as it seems very promising. The only thing you can be stuck on when stepping into retail is the POS system. It might be hard to choose which  POS system is the best for accepting payments, making sales, and managing inventory. 

Point of sale, POS, POS system, and Point of sale system — all these terms make it kind of overwhelming. 

In this comprehensive guide we'll shed some light on what is a POS system, how it works, and why you need it for your retail business. Thus, having read the article, you should have a clear understanding of the concept.

What is POS System?

A POS system is a combination of software and hardware that is used to help you centralize your business operations, accept payments, manage sales, inventory, staff sessions, customers, and more.

Although the term POS system is used to refer to the cash register, modern POS systems are software-based. It allows you to use them on any device: tablet, smartphone, or desktop.

That being said, physical POS or point of sale refers to the point where you check out your customers, like at the cash register or checkout line. But digitally POS is software that a cashier uses to ring up customers and log their sales.

Using POS system you make sure no items are lost and there are no mistakes or miscalculations during the checkout.

What is the Difference Between POS and POS System?

Very often you can see the term "POS" used without the "system". And there is also the "point of sales" popping everywhere. It makes things more complicated and keeps you wondering whether it's the same thing or if is there any difference between these terms.

In fact, there is.

1The point of sale (POS)
— is a location at your retail store where the transaction is complete. It is sometimes referred to as the point of purchase. So, it is a physical place where customers pay for their order, like the checkout counter.
2The point of sales system (POS system)
— is a technology cashiers use to accept payment and keep track of sales. You can think of it as a terminal merchants use to close the sale.

So the only difference between POS and POS systems is that the former is a location and the latter — is a technology. Similar, but not the same thing.

How Does a POS System Work?

You don't have to have any special skills to operate a POS and learn how POS system works. Basically, customers decide to buy your products, the POS calculates the final price, customers pay and the purchase is finalized. Here's what the POS process looks like:

1. Customers decide to purchase your products

While browsing through your products, customers choose what to buy. They can also ask the store staff to look up prices or product availability (e.g. in other colors or sizes) for them. Then the sales staff uses a barcode reader to add products to their cart.

Since modern POS systems are entirely digital you can check out customers with a phone or tablet. That being said some POS systems even allow you to use your phone or tablet camera to scan and add products to the cart.

2. POS calculates the total price

Once all products are added to the cart, the POS system calculated a total price including taxes. At this point sales staff can also apply discounts and gift cards. Then the system updates the inventory to reflect the sold item.

3. Customers pay for products

To finalize the purchase customer pay for the product with a debit or credit card, cash, loyalty points, or digital wallet. If customers pay with cash the POS system calculates a change automatically. And, when a card is used customer's bank has to authorize the transaction.

4. The POS transaction is finalized

After the transaction goes through, the POS transaction is considered finalized. The last thing you need is to print out a receipt or send it to your customers' email. Hand the products over to the customer and the sale is officially made. 

POS system process example

The process seems simple enough, doesn't it?

However, in reality, things are more complex since the process depends on whether you manage only a retail store, an online store, or both.

In case you manage both online and offline stores, the POS system will synchronize your inventory so neither of your customers, online or offline, will have to face out-of-stock situations.

What is POS System Hardware?

Although every POS system is a combination of both hardware and software, the software is typically provided by a specific brand and is compatible with different hardware. It is very rare for vendors to have their systems tied to software-specific hardware. 

Point of Sale System Setup

There are mainly five components we strongly recommend having for any physical store. 

So, let's look into the list of hardware your POS system should be compatible with.

  • Tablet or smartphone — these two devices are now very popular in retail since they allow retail staff to close sales on the go. You can accept payments and close transactions without forcing customers to wait in line.
  • Barcode reader — barcode reader is just a quick way to ring up product details, like stock status and prices. You simply have to scan items. It is considerably faster than using the search bar to find products manually.
  • Credit card reader — this hardware is essential to accept payments. It helps customers pay securely via credit card or through contactless payments like Apple pay or chip card.
  • Receipt printer — receipt printer might not seem that essential, but it is important if you want to hand customers printed receipts instead of sending them via email. 
  • Cash drawer — cash drawer is a safe place to store your cash, even if you accept contactless or card payments. We recommend having one in your retail store.

What is POS System Software?

You do need hardware to set up POS in your retail store. But it is actually useless without POS software that offers full control over the process.  

Typically POS software could be on-premise or cloud-based.
1On-premise POS software
— is not connected to the internet. It relies on the cloud system to keep all the information within a store. However, this approach makes it tied to a store manager or an IT specialist who has to maintain it constantly.
2Cloud-based POS software
— requires an internet connection to work. You usually have to pay a fee, set or monthly, to use the cloud-based service. Correspondingly, updates and fixes are provided by the POS software provider which bakes up data and makes it accessible from anywhere.

Common POS Features

Before you start looking for the best POS system for your retail store, you should know that it doesn't go down to accepting payments only. There is a variety of features your POS has to offer to ensure a streamlined sales process.

1. Payment processing

Once again, payment is one of the core features of any POS system. So you have to make sure it offers you as many payment options as possible: cash, chip cards, credit cards, online transactions (through an eCommerce website), and contactless payments.

2. Inventory management

The next important thing your POS has to have is the ability to track sales. It has to register when an item has been sold to calculate the number of items remaining in the inventory.

It should record the number of purchased items accurately so you don't run into out-of-stock situations. 

Some software can even notify you when you're running low on some items, so you can restock in time.

3. Reporting

Reporting is key to an effective business strategy. Most POS systems go with a POS reports feature to help you track how much you're selling across different locations at a particular point of the day, daily or quarterly.

It helps you to make better business decisions and see which of your retail stores does better than others to adjust your strategy. 

4. Staff management

POS system should allow you to create an account for each employee in your retail store so they can log in and out of the system. This allows you to see who is responsible for which sales in a different location. It is also useful if you want to keep track of the employee's performance.

5. Receipts 

Receipts are digital or paper trails of the purchased item that make processing refunds easier. Besides offering a receipt you appear as a trustworthy and reliable brand to your customers. So make sure the POS system you choose offers you the ability to integrate a printer and print receipts.

6. Customer relationship management

The last but not least, custom relationship management (CRM) tools help you to track what customers bought and when they bought it. Collecting this data provides insight into customers' behavior and helps to personalize your service, marketing, and communication across all retail stores. 

Synchronize Online and Offline Stores

In case you want to manage your online and offline stores and synchronize orders and inventory data between them you can also use POS. We offer a POS system for Magento with a user-friendly design, easy sales management, auto data synchronization, and a multitude of other features. 


Magento POS System is a robust solution that enables you to keep your online and offline store data in one place to deliver an omnichannel shopping experience. Magefan POS integration bridges the gap between a multitude...

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This software helps you to build a seamless customer experience in online and offline stores while managing all sales data and reports in one place. Create cashiers, add terminals and integrate different card readers to ensure a seamless checkout process for both customers and sales staff. 

If you manage Magento 2, give the Magefan POS system a try on our live demo