What Is a Point-of-Sale (POS) System? How It Works & 2023 Business Guide

A POS system allows businesses to accept payment from customers in person.
Tina Orem
Lisa Anthony
Hillary Crawford
By Hillary Crawford,  Lisa Anthony and  Tina Orem 
Edited by Sally Lauckner

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What does POS stand for?

POS stands for point of sale.

What is a POS system?

A POS system or point-of-sale system is a set of devices, software and payment services merchants use to make sales in person. A POS system manages customer purchases, accepts payments and provides receipts.

A point of sale is also where a merchant and customer conduct a retail transaction. It is where the merchant calculates the sale price for the customer, creates a record of the transaction and provides payment options. Many merchants use POS systems to perform these actions. Modern POS systems also generate reports, help manage inventory and track employee hours, among other things.

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How does a POS system work?

A POS system calculates a customer's purchase amount, adds sales tax, processes the payment and logs the time and date of the transaction. After completing the transaction, many POS systems generate a paper and/or digital receipt as well as adjust inventory records. POS systems are the modern version of old-fashioned cash registers.

Typically, the three main components of a POS system are hardware, software and payment processing services.

1 .POS hardware

Although hardware is a common component in POS systems, it’s not necessary in every case. For example, businesses that operate only online would not require POS hardware.

Some POS hardware options include:

  • Terminals.

  • Registers.

  • Cash drawers.

  • Receipt printers.

  • Tablet or alternative touch-screen monitors.

  • Barcode scanners.

  • Self-ordering kiosks.

  • Scales.

  • Kitchen printers.

  • Label printers.

2. POS software

  • On-premises POS system software: Sometimes known as a legacy system, this software is only accessible on the POS terminal where it’s installed. It facilitates payment processing, logs sales and labor information, and preferably syncs with accounting software. This solution often works for very small businesses that prioritize in-store sales and have only one POS terminal.

  • Cloud-based POS system software: This type of POS software syncs information from multiple POS terminals and typically offers mobile and desktop access. Cloud-based POS software offers greater flexibility and may be the better solution for online businesses, mobile businesses or those with multiple terminals or locations. Clover, Square, Toast and Shopify are popular POS providers that have cloud-based systems.

3. Payment processing services

For debit and credit card transactions, a payment processor is an intermediary between the merchant, the customer and the financial institutions (banks). Many POS systems come equipped with an in-house payment processor that handles card transactions. Credit card processing services typically come with additional fees.

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Businesses that operate entirely online and have no brick-and-mortar location generally do not need POS hardware. Their point-of-sale is their website, so they need an online shopping cart or other e-commerce software instead.

How much does a POS system cost?

How much you spend on a POS system depends on the hardware, software and payment processor you choose. Here’s what you could expect to pay for each component of a POS system.

1. POS hardware costs: $0 and up; around $800 to $1,500 for a full setup

Pop-ups and smaller businesses or vendors that sell goods at different locations might only need a smartphone and mobile card reader as their POS hardware. If you need more than a card reader, hardware will be your biggest upfront cost.

For example, here’s a look at some of Clover’s hardware prices:

  • $49 for chip, swipe and contactless Clover Go card reader.

  • $499 for Clover Flex mobile POS with printer.

  • $799 for Clover Mini POS.

  • $1,349 for Clover Station Solo.

  • $1,799 for Clover Station Duo.

Here’s what some of Shopify’s POS hardware costs:

  • $49 for Chipper 2X BT card reader or Tap & Chip card reader.

  • $219 for Retail Kit.

  • $399 for Shopify POS Go mobile device ($429 with case).

2. POS software costs: $0 per month and up

Software can range from a free mobile app to a paid plan with advanced features that can cost over $200 per month.

For example, here’s what Clover costs:

  • $14.95 for Starter Retail, Starter and Standard Professional Services, and Home & Field Services plans.

  • $44.95 for Standard Retail, Starter and Standard QSR, and Advanced Professional Services plans.

  • $54.90 for Advanced Retail and Advanced QSR plans.

  • $74.95 for Starter Full-Service Dining plan.

  • $84.90 for Standard Full-Service Dining plan.

  • $94.85 for Advanced Full-Service Dining plan.

Here's what Lightspeed costs, in comparison, for retail shops:

  • $89 for Lean plan ($69 if billed annually).

  • $149 for Standard plan ($119 if billed annually).

  • $269 for Advanced plan ($199 if billed annually).

Prices are higher if you don’t use Lightspeed as your payments processor:

  • $119 for Lean plan ($99 if billed annually).

  • $179 for Standard plan ($149 if billed annually).

  • $299 for Advanced plan ($229 if billed annually).

In addition to software costs, certain processors may ask you to pay chargeback fees and PCI compliance fees.

3. Payment processing costs: Around 2% to 3.5% per transaction

Generally, payment processors charge a fee based on a percentage of the card payment amount, plus a flat fee per transaction. Businesses typically pay more for online and card-not-present transactions compared to in-person transactions.

For example, here’s what Square charges:

  • 2.6% plus 10 cents for in-person transactions (2.5% plus 10 cents with Retail Plus plan).

  • 2.9% plus 30 cents for online transactions or invoices without a card on file.

  • 3.5% plus 15 cents for manually keyed transactions or card-on-file invoices.

And here’s what Clover charges:

  • 2.3% plus 10 cents for in-person transactions for most plans.

  • 2.6% plus 10 cents for in-person transactions on Retail Starter, Personal Services Starter and Professional Services Standard plans, as well as Home & Field Services Standard and Advanced plans.

  • 3.5% plus 10 cents for online or keyed-in transactions.

How do I find the best POS system for my business?

Popular POS providers offer different hardware and software packages, with some features based on industry or functional needs.

  • Restaurant-specific POS systems: Some POS systems are designed specifically for the food industry. They can take reservations, assign tables to different parties, manage menus, handle tips and more.

  • Retail-specific POS systems: This type of POS system offers more advanced inventory and customer relationship management features such as returns, purchase history and online orders.

  • Team management options: Some POS systems can help you create schedules, track hours, approve time off and sync data with payroll software.

  • Reporting and analytics: Common reporting capabilities allow you to monitor sales, identify top-selling items, view monthly sales trends and build custom reports.

  • Customer support: Phone and live chat-based support options are typically available to help you with the setup process and answer questions related to daily use. Some systems have support resources directly accessible through the POS device.

  • Integrations: A good POS system should integrate with the other software you’re using, especially your accounting, payroll and e-commerce software.

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