The Small Business Owner’s Guide to Point-of-Sale (POS) Systems

Gusto Editors

In the early days of retail, checkout for customers was relatively easy. Businesses used a cash box or, later, a cash register. In all-cash experiences, such systems suffice. However, accepting payments with plastic and technology requires a different approach. Given the reliance on debit card and credit card processing and smartphone payment apps, point-of-sale (POS) systems make complex payment processing simple. 

Keep reading to learn how to set your small business up to accept all types of payments from your customers.

What is a POS system?

A point-of-sale (POS) system allows you to easily complete non-cash payment transactions (also known as contactless payments) and provide your customers with a documented receipt. It is also used to track inventory and sales.

POS systems work for companies that sell products in-person or in-store—like a farmer’s market stand, or a brick-and-mortar retail store—as well as for e-commerce platforms and e-commerce integrations. All that’s needed is an internet-enabled device, such as a card swiper or an app on mobile devices, such as a smartphone or tablet (e.g., Android devices or an Apple iPhone or iPad).

How do POS systems work?

A POS system consists of both hardware and software. Here are the basics of how it works:

First, you can scan a barcode or manually enter a price into the system. The items being purchased will be tallied and itemized, and a total will be presented. 

Next, the customer provides payment either with a card, app, or cash. If the customer pays with a credit card, typically a card reader is used to receive the card information and then process payment. 

Once the payment is complete, a receipt is generated.

A short history of the POS system

POS technology dates back to the 1800s. James Ritty, a saloon owner in Dayton, Ohio, created the first mechanical cash register using technology he had seen on a steamship trip to Europe. On the ship, he saw a tool that tracked how many revolutions the propeller took. When he returned home, he and his brother began experimenting with a tool that used a similar method to prevent employees from pocketing profits from his saloon.

The result, in 1879, was the first cash register, which he named “Ritty’s Incorruptible Cashier.” Later, the design was modified with the addition of a cash drawer and bell that rang as sales were entered. The bell, in fact, was an anti-theft mechanism. It was designed to ring when the drawer opened, alerting owners and managers that a transaction was in progress. Subsequent iterations included features like the paper roll for receipts, and calculators.

Innovations to the POS system

Local Area Network (LAN) Technology

IBM developed the first modern POS system in 1973. The large machines could control up to 128 tills. It was also a groundbreaking use of the new local area network (LAN) technology. One of the first uses for the IBM technology was created for McDonald’s in 1974.


By the mid-1980s, PC-based systems were available with a touchscreen. These screens, which displayed colorful buttons, allowed for faster interactions. 

Cloud Technology

Cloud-based technology has been transforming POS technology for several decades. These software-as-a-service (SaaS) systems allow businesses to subscribe for a monthly fee. 

As technologies have advanced, POS systems have kept up to date. When smartphones and tablets became mainstream technologies, credit card readers were introduced. Cloud-based POS systems are constantly evolving, so be on the lookout for more features and changes!

Features of a POS

POS systems have both software and hardware components. Let’s take a look at both. 

POS Software

Typically, business owners have the choice of on-premise software or cloud software. Both require updating and maintenance. One advantage of using a cloud point-of-sale system (e.g., a PayPal, Shopify, TouchBistro, Vend by Lightspeed, or Square POS) is ease of use and maintenance. Your vendor will usually manage software updates that are distributed automatically to tills. Locally-hosted software is dependent on IT personnel to manage and update.

Software is the key to most POS systems. It manages key elements, including:

  • Staff logins and tracking
  • Scanning management
  • Report writing
  • Customer data collection
  • Customer management (such as buyer IDs)
  • Transaction management

POS Hardware

Here are the key hardware components of a retail POS system, also known as the POS terminal:

  • A cashier display shows your inventory database, sales displays, products and prices, reporting, and employee clock-in.
  • The barcode scanner can include both a flatbed scanner and/or a handheld scanner. The scanner captures product information, including the item, price, size and other information. The scanner integrates with inventory management software to track the quantity of each product.
  • A cash drawer, which holds bills and coins and can also be a safe repository for receipts and coupons.
  • The receipt printer gives customers an itemized account of their purchase.
  • Signature capture devices that allow customers to record their signature, which helps streamline digital transactions and can help to prevent fraud.
  • Network devices connect tills to central servers located either onsite or in the cloud.

Benefits of a POS

There are many advantages to POS features, including:

  • Automated inventory management
  • Sales reporting and sales analytics
  • Customer insights
  • Employee management, specifically tracking
  • Integration capabilities with related financial and HR systems
  • Seamless payment experiences for customers
  • Fraud detection

Types of point-of-sale systems

Today, businesses have many options for POS solutions. Here are the most common ones:

  • POS apps: These solutions are ideal for small businesses and those looking for simple solutions. They offer portability but limit scalability.
  • Touchscreen systems: These systems are quick and easy-to-use. 
  • Mobile systems: Mobile POS systems are useful for retail businesses that rely on traveling salespeople or for sales at remote events, like conferences. They are also useful for businesses that are on the move and don’t have a physical location, like food trucks. 
  • Cloud systems: Cloud POS systems tend to be an especially good fit for businesses that plan to scale. Business owners can access information from anywhere and they also reduce reliance on on-site technology and maintenance. 
  • Multichannel or omnichannel systems: These systems are useful for retailers that sell online and in-person and want to integrate sales with inventory management.
  • Self-service kiosks: These intuitive systems are useful in convenience stores and quick-service restaurants like cafes. They keep things efficient and reduce the need for cashiers, but they can increase risk of theft. 

How to determine what are the best POS systems for small businesses

Here are a few things to consider before deciding which POS system is right for your business.

Your budget

How much you can pay will determine what features and capabilities you can afford. You’ll also want to consider whether to purchase an on-premises system with transaction fees or use a subscription-based cloud solution. The payment processing fees you’re likely to pay in a subscription system will hinge on features like:

  • Your transaction volume
  • Number of locations and users
  • Features and functionalities 
  • Inventory size

Your business needs

Is your small business looking to add additional locations? Provide online ordering? Go mobile? Add a website? Sell gift cards? Offer a loyalty program? Where and how you do business—and how much customer support you’ll need to provide—will determine which system you need.

Your limitations

If you’re looking to upgrade an existing system, start by listing the problems or gaps in your current solution. 

You will also want to consider your tech infrastructure and your ability to maintain a new or upgraded POS. Investing in a POS system is a big decision. Understanding the various payment options, onboarding process, maintenance requirements, costs, and customizable add-ons or integrated services (e.g., email marketing) will help you narrow down your top picks to then make the right choice for your type of business.

Gusto Editors Gusto Editors, contributing authors on Gusto, provide actionable tips and expert advice on HR and payroll for successful business management.
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