What is a POS (point-of-sale) system and how does it work?

Now, more than ever, it's essential to use the right point-of-sale (POS) system for your store, restaurant, or pop-up to keep your checkout lines moving and ensure your customers' transactions are fast and secure. Your POS system must also enable customers to pay the way they want, wherever they are.

Read on to learn what a POS system is and how to select the right one.

What is a POS system?

A point-of-sale (POS) system is a comprehensive tool comprising hardware, software, and payment services used by businesses to complete transactions and manage operations. These transactions can take place in various locations, including physical retail stores, events, pop-ups, or even online. Let’s take a closer look at how each component of a POS system works.

How does a POS system work?

A POS system uses a combination of hardware and software that allows businesses to complete sales transactions both in-person and online. When a payment is processed through your POS, it is verified with your customer's bank (for debit cards) or their credit card issuer before the transaction can be completed. Once the payment is approved, the POS system works with your bank to ensure that the money is deposited into your account as soon as possible.

Step by Step POS System Workflow - Infographic

What happens during a POS transaction?

Ring up the sale: Products or services are added to the cart. Each item is linked to a price and inventory inside the POS system.
Calculate total (including taxes): The POS automatically supplies pricing, discounts, and sales tax. The tax rates are based on your business location for in-person sales, or the customer’s shipping address for online purchases.
Collect payment: Customers pay using card, cash, mobile wallet, or online check-out.
Verify and authorize the payment: The POS securely sends the payment request for approval to the card issuer (customer’s bank) to verify the card and confirm available funds.
Confirm the transaction: Once approved, the sale is completed and recorded.
Update inventory automatically: The quantity sold is deducted from stock right away. If you sell across multiple locations or online, the inventory syncs across all channels, preventing overselling.
Issue receipt: A digital or printed receipt is generated, and the transaction is saved for recording.
Deposit funds to the seller's account: The payment is processed by the POS or payment provider (such as GoDaddy Payments, Stripe, or Square) and deposited into your bank account based on the POS system’s payout schedule.

What does POS debit mean?

A POS debit transaction occurs when a customer pays for a purchase using funds from their bank account. On a bank statement, “POS debit” typically appears alongside the merchant name and transaction amount. Businesses can accept these payments through their POS system using a physical debit card, a contactless payment method, or a digital wallet connected to a debit account.

POS transaction types

Customers like having payment options, and your POS system helps you keep track of each one in the same place. Here’s a quick look at the transaction types most POS systems can accept:

Debit cards: Debit payments pull funds directly from a customer’s bank account. Customers may tap, insert, swipe, or enter a PIN, depending on the card and terminal.
Credit cards: Credit card payments use a customer’s available line of credit. The card issuer approves or declines the transaction before the sale is completed.
ACH payments: ACH transactions transfer funds directly between bank accounts. Businesses often use this payment type for invoices, recurring payments, or larger purchases.
Cash: A POS system can record cash sales, calculate change, and help staff track cash drawer activity alongside digital payments.

Common POS system features

Here's everything you'll need from a POS system to start selling quickly, easily, and securely across all of your sales channels.

POS hardware

Ideally, a POS machine comes ready out of the box with built-in features for a convenient in-person checkout process. They are all lightweight and handheld for in-store mobility. Some of the key features of POS system hardware include:

Smart Terminals with built-in software
Large-display screens for accurate checkouts
Dual screens for a great customer experience (a dedicated screen for you and one for your customers)
A paper receipt printer
A barcode scanner to quickly scan product UPCs and QR codes
End-to-end encryption with payment card industry (PCI) security compliance

POS systems with smart terminals work with in-person payment options other than credit and debit cards, such as tap-to-pay and digital wallets. These are often better for payments on the go.

POS software

Some of the best POS systems let you configure your new hardware online before the device arrives. For example, you can add your product listings in advance, upload company logos, and customize printable receipts. This means your device is ready to accept transactions as soon as it's out of the box and connected to your Wi-Fi.

It's important to look for a POS system that's scalable and versatile. This enables you to manage and track every sale you make online or in-store, rather than using software that can only be installed locally on your device and does not integrate with other payment data.

Top POS systems come with a dashboard that keeps you organized and enables you to quickly track your inventory and view metrics on how your small business is performing. With the help of visual graphs, you can map your sales and orders. The dashboard also allows you to check the performance of sales across various channels such as in-person, website, and marketplaces.

POS payment processing

Your POS system should be able to process all major credit and debit card transactions, as well as offer additional payment options via digital wallets on customers' phones. Many shoppers adopted contactless payment methods, like digital wallets, during the global pandemic and continue to use them, so it’s important to have a system that works for them.

Be sure to get a card reader or POS terminal with a battery that lasts all day and enables your customers to tap, dip, and swipe to process payments anywhere you sell.

Wi-Fi connectivity as well as the ability to accept offline payments are both important when considering a POS system, so you never miss a sale. In addition, you can look for a POS that supports cellular access if you plan to sell in areas where Wi-Fi connections are unavailable.

If you sell on the go at a local farmer's market, pop-up, or event, you can use a card reader like GoDaddy's portable credit card reader with a docking station for all of your card and contactless payments. Read our guide to credit card processing for more details.

Types of POS systems

There are several types of POS systems that you're likely to encounter, each designed to meet different business needs. These include legacy POS systems, cloud-based POS systems, mobile POS systems, and omnichannel POS systems.

Legacy POS systems

Traditional POS machines and systems store your sales data on local servers in a closed internal network. This setup can make you vulnerable to system crashes and technical issues that cause long checkout delays and unhappy customers. Many grocery stores and big-box stores still use these legacy systems.

Best for: Large, established retailers with existing on-site infrastructure and limited need for remote access.

Cloud-based POS systems

Cloud-based POS systems can process credit and debit card transactions anywhere and store your sales data in the cloud. Many systems also include offline functionality, helping your business keep sales moving during an internet outage.

Cloud-based systems work with mobile-optimized POS machines to process customer payments however they want and wherever you interact with them. You can also view and analyze your sales data from anywhere in real time via a cloud-based dashboard across all of your sales channels. Cloud-based POS systems are also often easier to use and more affordable.

Best for: Small businesses that need flexible access to sales data, simple setup, and room to grow.

Mobile POS systems

A mobile point-of-sale (mPOS) is a wireless, portable device, typically consisting of a smartphone or tablet. It can handle the same core payment functions as a standard cash register or conventional POS system in a smaller footprint.

Essentially, mPOS is a digital and highly flexible alternative to the traditional cash register. It gives businesses the flexibility to accept payments wherever they meet customers instead of keeping every transaction at a fixed checkout counter.

Best for: Service providers, pop-up sellers, and retailers that want to accept payments on the go.

Omnichannel POS systems

Today’s customers shop everywhere — online, in-store, through social, even from their phones while waiting in line. An omnichannel POS system brings all those touchpoints together so you can deliver a smooth, consistent experience no matter where the sale happens. That means easier tracking, better data, and smarter decisions.

Best for: Businesses that sell through multiple channels and want one system to manage orders, inventory, and customer data.

Pros and cons of using POS systems

Unsure whether a POS system is a good investment for your business? Consider these pros and cons:

POS system pros

Process multiple payment types quickly and securely through one device.
Let customers pay with credit cards, debit cards, contactless payments, and digital wallets.
Help track inventory and alert you when stock is running low.
Scale with your business as you add products, employees, locations or sales channels.
Automate sales tax calculations, helping reduce manual work and potential errors.
Support QR codes, coupon codes, and customer loyalty programs.
Customize receipts and email confirmations with your business branding.
Connect in-person and online sales data, making it easier to track performance across channels.
Offer free trials with many providers, giving you time to test features before committing.
Support a broader loss prevention strategy by helping identify inventory discrepancies, suspicious transactions, and employee theft.

POS system cons

Monthly software subscriptions, payment-processing fees, and add-on features can raise the total cost beyond the advertised price.
Some providers require specific card readers, tablets, or terminals, so replacing damaged hardware or adding checkout stations can create extra costs.
Card-present POS setups may not support every selling scenario, such as invoices, phone orders or delivery payments, without additional tools.
Internet-dependent systems can limit payment processing or real-time reporting during an outage if offline mode is unavailable or has restrictions.
Moving product data, customer records, and inventory into a new system can take time and may require staff training before launch.
Integrations for accounting, ecommerce, payroll or loyalty programs may cost extra or require third-party apps.
Customer support response times and availability vary by provider, particularly on lower-priced plans.
A system with more features than your business needs can be harder for employees to learn and may add unnecessary monthly costs.

Who can benefit from using a POS system?

POS systems can benefit a variety of small businesses and their customers, including:

Boutique managers who sell unique, high-value items
Bodega owners who sell a wide variety of products
Bakeries, coffee shops, or tea shops that sell food and drinks over the counter. Food truck owners who need wireless solutions
Retailers or quick service restaurants who sell at pop-up shops or events

Industry-specific POS features

Not all businesses run the same way, so our point-of-sale system shouldn’t either. While most POS systems offer standard tools like sales tracking and inventory, some industries need a little more to keep things running smoothly.

Appointment setting tools for service businesses

If you run a salon, spa, repair shop, or other service business, appointment scheduling tools are a must. The right POS system lets you book appointments, manage your team’s calendar, and send automated reminders to cut down on no-shows. It’s one less thing to worry about and creates a smoother experience for both you and your clients.

In addition, POS providers support the ability to send branded invoices from your web dashboard.

Countertop and portable smart terminals for food and beverage businesses

For counter-service restaurants and coffee shops, speedy checkout at rush hour is key. Larger displays let staff view orders and catalogs side by side for faster, more accurate checkout, enhancing overall customer satisfaction.

Dual screens help with customer experience, and a durable portable POS helps accept payment at the table or during promotional pop-up events outdoors. Features such as tip management help keep your staff happy.

Learn more about our QSR POS system.

Inventory and sales management for retail businesses

Running a retail shop? Look for a retail POS system that goes beyond basic checkout. Features like detailed inventory tracking, staff management, and built-in tools for online and in-store sales help you stay organized and sell smarter. A retail-ready POS helps you stay competitive and keeps your customers coming back.

A robust inventory management system also allows immediate visibility into low and out-of-stock items, preventing missed sales opportunities, and provides the ability to directly update inventory on the terminal, improving efficiency at the point of sale.

Catalog management features in POS systems

If you sell physical products, keeping track of your inventory can make or break your bottom line. A modern POS system helps you stay on top of your stock in real time, across every channel. Here are some must-have features to look for:

Real-time product tracking: Know what’s in stock at any given moment. As items sell or get restocked, your inventory updates automatically.
Stock management: Set custom reorder points, track stock movements, and get ahead of issues like overstocking or running out of bestsellers.
Digital inventory counts: Ditch the clipboards. A digital inventory count saves time, reduces errors, and gives you more accurate data you can actually use.
Handling product variants: Manage all your variants under one product listing, so nothing slips through the cracks.
Bulk-editing and Bulk-uploading: Bulk-edit your catalog for the simultaneous update of multiple catalog items, drastically reducing the time spent on individual product modifications. The ability to bulk-upload the catalog helps users migrating to a new system easily transfer their existing product information.
Low-stock alerts: Set alerts to give you a heads-up when it’s time to restock, so you never miss a sale due to an empty shelf.
Automated reordering: Save time by setting up automated reorders when stock hits a certain level.
Multi-channel syncing: Keep inventory consistent across the board to avoid overselling and keep customers happy.
Barcoding: Speed up checkout and inventory counts by scanning products to instantly pull pricing and update stock. No manual entry needed.

What is the average cost of a POS system?

The average cost of a POS system varies from $0 to $2,000 for the first year. This includes hardware, software, and installation fees. The hardware alone can range from $0 to $1,700 per terminal, and the software fees typically fall between $0 and $300 per terminal. After the initial purchase and setup, ongoing average costs are around $1,000 per year, depending on factors like:

The number of registers you'll need: Looking for competitive hardware prices will optimize your spend if you need multiple terminals.
Your inventory size: Managing a large number of SKUs will sometimes cost more
Employee numbers: Some POS systems charge for each employee in the system
Industry specificity: For example, it may cost more to use some restaurant POS systems, which need to integrate a kitchen cash register with handheld POS devices
Add-on features: There may be an additional monthly cost for adding gift cards or loyalty programs to your POS system

Factors to consider when choosing a POS system

Choosing a POS system is a big deal because it can shape how you run your business day-to-day. From handling transactions to syncing with other tools you use, the right POS setup makes everything smoother. For an in-depth checklist on making the best choice, check out our guide on how to evaluate a POS device. Here are a few things to keep in mind as you shop around:

Transaction volume: Choose a system that can process your expected number of sales without slowing down during busy periods.
Sales channels: Look for multichannel capabilities if you sell in-store, online, at pop-ups, or through social media.
Software integrations: Prioritize a POS that connects with the tools you already use, such as accounting software, CRM platforms, inventory management systems, ecommerce tools, and marketing software.
Industry-specific features: Select a system designed for your business type. Restaurants, retail stores, and service businesses often need different tools and workflows.
Scalability: Make sure the system can support additional locations, products, employees, and sales channels as your business expands.
Operational needs: List the features that matter most to your daily workflow, such as inventory tracking, employee scheduling, loyalty programs, or reporting. This helps you avoid paying for tools you will not use.
Ease of use: A clear, intuitive interface can reduce training time, minimize mistakes, and help employees complete sales faster.
Total cost: Review hardware costs, software subscription fees, payment-processing rates, and charges for add-on features before choosing a provider.
Customer support: Look for responsive support through the channels that work best for you, such as phone, chat, or email. Confirm support hours and expected response times before signing up.

POS fraud prevention tips

Every payment comes with some risk, but the right POS system and a few smart habits can help your business spot suspicious activity and protect customer payment information.

Use secure payment methods: Chip and contactless payments can help reduce counterfeit card fraud. Encourage customers to tap or insert their cards instead of swiping when possible.
Keep your POS system updated: Software updates can include important security improvements, so install them as soon as they are available.
Limit employee access: Give team members access only to the tools they need. Unique employee logins can also make it easier to review activity tied to a specific transaction.
Watch refunds, voids, and discounts: Frequent or unusual changes to orders can be a sign that something needs a closer look. Transaction reports can help you identify patterns early.
Protect payment data: Choose a POS system that supports PCI-compliant payment processing to help handle cardholder data securely.
Train your team: Make sure employees know how to recognize suspicious payment activity and what steps to take if a transaction does not look right.

How GoDaddy can help your business

If your business could benefit from a POS system, GoDaddy offers modern, sleek POS terminals for businesses looking to streamline their checkout process. And, with the transparency of GoDaddy's POS per-transaction pricing — 2.3% + 0¢ per in-person transaction (2.3% + 0¢ with Point of Sale Plus plan) — that means predictable costs based on your sales volume.

Business owners can also get a free Smart Terminal, up to $399 value, with personalized setup, migration, and 24/7 support, with the lowest fees in the market, as low as 0% for credit card transactions with discounted debit rates.

From retail businesses to restaurants, GoDaddy POS can help you reap the benefits we’ve covered in this guide.

For more information on POS systems, read our comparison of the best payment processors and our guide to streamlining your business with Smart Terminal Point of Sale.

FAQs

What is the difference between a POS system and a cash register?

A cash register primarily records sales and stores cash. A POS system can do that and more, helping businesses accept different payment types, track inventory, manage employees, and view sales reports. Modern POS systems also often connect with ecommerce platforms, accounting tools, and customer loyalty programs.

What does POS stand for?

POS stands for point of sale. It refers to the place or system where a customer completes a purchase. This can include a checkout counter, an online store, or a mobile device used to accept payments.

What does a POS device mean?

A POS device is the hardware used to process a sale, such as a card reader, touchscreen terminal, tablet, or smartphone. It works with POS software to accept payments and record transaction details. The right device depends on where and how your business sells.

Disclaimer: This content should not be construed as legal or financial advice. Always consult an attorney or financial advisor regarding your specific legal or financial situation.