What the Heck is POS System?

Updated: September 14, 2009

This article will help you gain some basic knowledge before you descend into the cosmic bunny hole of POS systems. POS means "Point of Sale". Don't confuse a POS with an Electronic Cash Register or "ECR". A POS is a computer with hard drive, POS software, merchant account and other attached POS hardware (e.g. cash drawer, printer). An ECR, on the other hand, is a manual cash register, or electro-mechanical device, with limited data storage capability.

Remember this: A POS system is a mission critical survival tool. An ECR is a calculator with a printer. Though a POS system may cost 10 times more than an ECR, it provides 40 times more business benefits. Think of a POS as a car and an ECR as a bicycle.

A POS system generally includes four components:

1. POS Software
2. Computer
3. POS Hardware
4. Merchant Account (so you can accept credit cards)

Let's talk about each.

1. POS Software: This is the most important part. POS software helps you perform four critical business functions:

a. Sell products quickly, take payments and balance your cash
b. Keep a customer database and do marketing stuff with it
c. Track inventory and determine inventory requirements and overages
d. Print sales, gross profit and cash management reports

Remember this: Most POS applications do the same thing at the small shop level. So don't get "analysis paralysis" trying to compare specific features and functions across competing software packages. Certainly make sure the software meets your basic requirements including the above items. And avoid POS software that requires non-standard operating systems like Linux, UNIX, MAC, etc. Stick with Microsoft Windows - good or bad, there will always be an abundance of geeks available at a moment's notice who can fix Windows-based computers. Lastly, really zero in on support packages because it is support where the offerings can be vastly different. So make sure the support provided by the software vendor meets your specific support criteria (e.g. do they have phone support, what hours, after hours, onsite, etc.).

2. Computer: Two types of POS computer configurations are out there. Most retailers use a regular PC with monitor (touch or non-touch), keyboard and mouse. Restaurants tend to use the second type called an "all in one." This is touchscreen and computer "all in one" unit - like what you see at Wendy's or Carl's.

Remember this: If you are a small shop, forget about the "all in one". They cost more to buy and maintain. And if your software vendor (restaurant or retail) recommends a touch screen for their POS software then get one - even though it may cost a little more. Further, don't get hung up on having to have a brand name like HP or Dell. Though there may be some comfort with a big brand remember there are also some big downsides primarily in getting timely and accurate support.

3. POS Hardware: The three essential POS hardware components are receipt printer, cash drawer and credit card swipe (a.k.a. magnetic stripe reader or MSR). Add a bar code scanner to the essentials list if you are a retailer. There are lots of other optional peripherals you can get to enhance your installation like a customer display (sometimes called "pole display"), signature pad, debit pin pad, scales, etc.

Remember this: Like software, there is not much difference between hardware components at the non-complex POS level. The key point here is to buy hardware and POS software from the same vendor. Don't try to save a buck by stitching together your POS from a bunch of different vendors. Even if you pride yourself on knowing something about computers, you'll regret it.

4. Merchant Account: A merchant account allows you to accept credit, debit and gift cards. You really need one of these since credit card sales will likely account for somewhere between 30 to 60 percent of your sales. The POS software and merchant account often go hand in hand much like POS software and hardware, peanut butter and jelly, pizza and beer, etc. so get it from the same supplier.

Remember this: Don't get a merchant account before you buy a POS! It is very possible to sign up with a merchant provider that is not compatible with your POS software. Or worse yet you might be fooled into buying or leasing POS hardware that you may already get as part of your POS system purchase. Work with your software provider first to find out which merchant providers are already programmed into their software. If your candidate software supplier is not programmed to work with at least a few different merchant account providers then look elsewhere.

Let's summarize some key points. First, a POS is a mission critical survival tool whereas an ECR is a calculator with a printer. Get a POS even if you think you can't afford it as it will pay big dividends later. Second, don't' forget about support. Software features and functions being equal support offerings can vary widely. Third, buy everything from one supplier and don't get a merchant account before you buy the POS system!

Now that you know little something about POS, be sure to read the companion article "What can a POS do for me?" This article and related articles can be found at http://www.posfordummies.com.

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