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You’ve probably interacted with POS systems at some point, even without realising it. 

You can find them almost everywhere we go, be it a restaurant or hotel lobby, used for paying for our meals and inputting check-in times, respectively.

But what exactly is a POS system, and how does it work in the grand scheme of things? 

Business-wise, POS systems allow business owners to keep a record of their cash flow. Through a POS system, they can simplify much of their sales activities.

As a consumer, POS systems may not have as much of an impact on your day-to-day tasks. But it’s a different story altogether if you’re a business owner.

You can’t ever go without a POS system if you own any F&B establishment (or any business, for that matter). This guide discusses everything you need to know about POS systems, how they work, their types and many more. Read on.

1. What Are POS Systems?

“POS” stands for Point of Sales. POS transactions happen whenever a consumer pays a certain amount to buy goods or services from a seller/provider. 

The primary purpose of a POS system is to examine and record all POS transactions between buyer and seller.

A POS system will have two major components: the point of sale software (or the commerce platform) and the point of sale hardware (refers to equipment such as the cash register, computer, and other hardware that assist in completing transactions.

With this understanding, a POS system is a suite of hardware and software where consumers pay for products and services. 

It can refer to a cash register with POS terminals and other devices. Or, it could refer to a virtual transaction platform done on a computer or mobile device.

Point of sale transactions are generally completed electronically, using a debit or credit card reader, but they can also be completed using a cash register.

2. How Does A POS Transaction Work?

Here’s a step-by-step guide on how POS transactions work. Remember that a consumer’s first encounter with a POS system starts right when they walk up to the register:

  • Step 1: A customer shops for products or avails of a service from a seller/provider.
  • Step 2: The seller scans the products or encodes the service cost onto a device. This device shows the prices of each item and calculates the total price of all items purchased.
  • Step 3: The buyer pays for the goods online or offline.
  • Step 4: In online POS transactions (credit card or debit card payments), POS terminals read the card’s magnetic strip to check if there are sufficient funds.
  • Step 5: The POS system transfers the funds to the merchant.
  • Step 6: POS sale transactions are recorded, and a receipt printer produces an official copy of the transaction. Or, the machine sends a softcopy of the official receipt through email or instant messaging.
  • Step 7: Meanwhile, offline POS transactions refer to transactions performed in offline mode. The POS system will continue accepting cards as payment, regardless of internet connectivity. For example, the receipt printer, barcode scanner, and card drawer are all features that can still work even without an internet connection.

POS transactions are commonplace in F&B establishments, like coffee shops, bistros, restaurants, pubs, etc. Using efficient POS systems is key to smooth-sailing buyer-seller transactions and overall sales management.

3. What Are The Differences Between A POS System And Point Of Sale Transaction?

We mentioned earlier that POS is an abbreviation for point of sale. The point of sale refers to any location where transactions for products and services can take place.

For a retail business, like restaurants, this location is the spot containing the cash register and the POS system.

If you’re at a fast food joint, the area with the cash register is considered the point of sale. The same idea applies to other businesses, say, a clothing store: anywhere the customer pays for a shirt or piece of clothing is the point of sale.

On the other hand, the POS system is what makes that location a point of sale area. The case is different if you’re using a cloud-based POS system, wherein the entire physical store serves as the point of sale.

4. What Are The Types Of POS Transactions?

POS transactions can be categorised into two major types: offline and online.

Online POS Transactions

As the name suggests, online POS transactions happen when a buyer purchases goods online. 

For example, a buyer may be browsing for a laptop stand on Shopee. The POS payment occurs once the buyer uses their card or a digital wallet to pay for the goods.

In online POS transactions, the seller will have to wait before the final amount of the purchase is credited to them. This is because the POS system has to send a request to the card-issuing bank for authorisation.

Offline POS Transactions

Offline POS transactions involve a brick-and-mortar location. They occur when a consumer enters a physical store, purchases several items, and pays the merchant in cash.

However, modern cases of offline POS transactions refer to new POS systems with features that still work without internet connectivity.

5. What Are The Key Features Of A POS System?

We’ve established that modern POS systems function through hardware and software.

In legacy POS systems, the hardware may contain a server or computer-connected cash register. Meanwhile, modern systems may feature portable devices. 

For instance, a smartphone or a tablet can be considered a POS system, so long as it is hosted in the cloud.

Other hardware features in a typical POS system include:

  • Barcode scanner
  • Receipt printer
  • Label printer
  • Card machine
  • Cash drawers
  • Data capture devices
  • Scales (for weighted goods)

Meanwhile, POS software can store and maintain sales information in a database. Modern POS systems may be loaded with features and capabilities such as:

  • Billing
  • Order processing
  • Sales reporting and monitoring
  • Analytics
  • Returns or refunds
  • Mobile connectivity
  • Customer relationship management
  • Employee management
  • Inventory management
  • Loyalty programs

Many POS software to date contains integration features that make them compatible with third-party software for:

  • Bookkeeping
  • Accounting
  • Email marketing
  • Other ecommerce platforms

6. What Is POS Reconciliation?

POS reconciliation is cross-checking POS sales, records, credit card processing statements, and cash on hand to ensure no discrepancies.

POS reconciliation makes your sales records and finances more efficient. It has several benefits, such as reducing accounting mistakes, securing business deposits, and recognising unauthorised transactions.

Reducing Accounting Mistakes

An efficient POS reconciliation process helps recognise accounting errors before they can damage. 

Even the most seasoned and professional accountants are prone to making mistakes. 

You’ll need to set up a well-defined POS reconciliation protocol to avoid disrupting your financial and sales records.

Securing Business Deposits

If you regularly make direct debit payments to your suppliers and merchandisers, managing your finances is essential, so there’s always enough cash to cover such payments.

Regular POS reconciliation ensures you don’t run into a money shortage situation in the future. Further, it ensures compliance with local business regulations.

Recognising Unauthorised Transactions

According to the US National Restaurant Association, over 70% of inventory shortages and around 4% of restaurant sales discrepancies are due to internal employee theft. This is rampant across F&B businesses and can cost millions of dollars to rectify.

Fortunately, reconciling your financial statements through a POS system can eliminate these issues. 

POS systems are in-built with features that can help identify and challenge unauthorised transactions.

7. What Are Cloud-Based POS Systems?

Common POS systems completely operated on-premise, meaning they could work only when situated in a specific area of the store or restaurant. 

Legacy POS systems, which included several pieces of equipment and other devices, couldn’t easily be transferred from one location to another.

However, a breakthrough in the early 2000s ushered in a new generation of POS systems. 

Cloud-based storage and technologies paved the way for mobile POS systems. Business owners could manage and operate their POS systems on the comforts of a mobile device, so long as there is an internet connection.

Although more modern technologies have emerged, legacy POS systems are still widespread. But, POS management has drastically been altered by the cloud.

Now, restaurants and other retailers can complete POS transactions more easily with cloud-based POS:

  • Bringing POS systems to customers through tablets and other mobile devices. These can also be used for customer and inventory management.
  • Making live changes on the menu, be it remotely or on-premise.
  • Reducing setup time and increasing visibility for pop-up shops or sidewalk events. Business owners will encounter little-to-no problems transferring cloud-based POS software data into new systems.

8. What Should You Look For In A POS System?

Now that you have a good grasp of why you should have a POS system for your business, it’s time to get into the nitty-gritty of what to look for one.

While all POS systems have some fundamental features and additions, not all are built the same.

Ultimately, your POS system must be compatible with your overall business. It must be the right fit so that it adds value to your current operations. 

Otherwise, you’ll end up wasting money because you chose a generic POS system that’s doing more harm than good.

To help you out, we’ve listed a few key features that should never be missing from your POS system. Check them out below.

Billing And Order Processing

All POS systems must have a billing and order processing feature. The hardware and software should work hand-in-hand to be able to bill purchases, scan items, and use various modes of payment.

Additionally, the POS system must be able to print an order invoice, add discounts, include customer and merchant details, and email official receipts for every transaction.

Inventory Management

Some POS systems may also include an inventory management module. 

This module gives business owners a complete look into their inventory, SKUs (Stock-Keeping Units), inbound, outbound, and other SKU transactions.

Inventory POS management must also be able to modify the stock (i.e., by increasing or decreasing them) while allowing the operator to view the inventory and encode any stock adjustments as necessary.

Sales Reporting And Monitoring

Any POS system must be able to produce a complete report on all sales transactions. The report’s contents can cover data over a certain period (hourly, weekly, bi-weekly, monthly, bi-monthly, quarterly, annually, etc.). 

Merchants can use all the data to gain actionable insights for business success.

An advanced POS sales reporting module includes other data such as sales trends, seasonal product demand, overspending, SKU information, and other relevant data.

Multi-Channel Returns Management

Other functionalities of advanced POS systems include multi or cross-channel returns management. 

The system must be able to generate information regarding returns, merchant’s name, buyer details, and other remarks.

Customer Data Management

Restaurants and retailers can also use POS systems to encode, store, and manage customer data and purchasing history.

Business owners use the customer data management module to provide tailor-fit experiences to customers.

Gift Cards, Discounts, Rewards, And Loyalty Programs

Aside from billing and sales, a POS system can also manage customer rewards and incentives. 

It could be used to track the validity or expiry of rewards. The system can also track discounts, promos, gift cards, and other promotional activities.

Conclusion About Point Of Sale Transaction

Point of sale transactions have evolved from traditional legacy systems to more advanced, cloud-based POS solutions.

Their importance in the F&B and retail sector cannot be underscored enough — POS systems have been invaluable in managing a business’ day-to-day sales. These systems have become non-negotiable in determining business success.

Are you looking for a reliable POS and restaurant ordering system in Singapore? NinjaOS is an all-in-one, feature-rich restaurant POS system specialised for the F&B industry. 

Fully customisable at 0% commission fees, NinjaOS makes restaurant management a breeze. Try a demo now, or contact us for more information!

Frequently Asked Questions About
Point Of Sale Transaction

What Are The Types Of POS Systems?

Here are the different types of POS systems:

  • Self-service kiosk POS
  • Multi-channel POS system
  • Mobile POS system
  • Tablet POS System
  • Terminal POS system
  • Online POS system

How Do Cloud-Based POS Systems Work?

Cloud-based POS systems store and manage sales data virtually. All these functions are performed online instead of on-premise. 

Cloud-based POS software is intended for internet-enabled devices, like smartphones, tablets, touchscreen monitors, etc.

What Is An Example Of A Point Of Sale?

Point of sale refers to any place or event where a transaction takes place. 

Let’s say you’ve just finished dining at a restaurant. The staff would encode your ordered menu items into the POS machine.

They will use it to generate an invoice including the price and quantity of each item in your order.

What Are POS Terminals?

A POS terminal refers explicitly to the hardware that allows the merchant to process card payments (debit or credit).

*NinjaOS is a product of Jankosoft

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