Point of Sale Terminals: How They Work & Top Picks

There’s a lot of technology involved in running a retail business. A point-of-sale (POS) terminal, however, is the most important. 

It’s the central hub through which every transaction your business does takes place. Beyond just payment processing, it’s also the source of critical data that can influence major business decisions. That’s just skimming the surface of what a POS terminal can do.

What is a point of sale terminal?

A POS terminal or Point of Sale terminal, is a hardware device used in retail businesses to process transactions. It serves as a central hub for accepting payments, managing inventory, and generating sales reports. POS terminals streamline the checkout process and provide a seamless customer experience.

POS stands for “point of sale,” which is both literally where the sale takes place and shorthand for this software and hardware combination. A POS terminal is also referred to as a POS system, or just a POS.

POS terminals are made up of several key components, including:

• A smart device, like a tablet or smartphone, that runs the POS software
• A bar code scanner, which can be paired to the terminal 
• A payment terminal, also known as a card reader, which processes all kinds of payment methods, including credit cards, gift cards, and credit cards, gift cards, and mobile payment options
• POS software, which enables these tools to work together and performs all of the functions listed in the next section, and many others

How a point of sale terminal works

• Checkout
• Payment collection
• Authorization
• Completion of sale
• Settlement

Checkout

A shopper selects an item to purchase and approaches the checkout counter or POS terminal location. Cashiers can look up products in the POS system based on their category, name, or SKU number and manually enter the information into the terminal. Or, scan the barcode. 

Payment collection

The POS terminal automatically calculates the total bill, including any fees or sales tax. The customer then chooses their payment method, which can be credit card, cash, mobile payment, etc. They can insert, swipe, or tap their card on the POS terminal. 

Payment authorization

The card reader captures the card information and transmits it to the payment processor. Then. the POS terminal sends an authorization request to the acquiring bank (the merchant’s bank) through the payment gateway.

The acquiring bank forwards the request to the card network (e.g., Visa, MasterCard), which then sends it to the issuing bank (the customer’s bank) for verification. 

The issuing bank checks the card details, verifies the availability of funds, and approves or declines the transaction. This decision is sent back through the card network to the acquiring bank and finally to the POS terminal.

Completion of sale

If approved, the POS terminal prints a receipt, and the cash drawer (if used) opens for any cash back. If declined, the POS terminal displays an error message, the cashier will request another form of payment from the customer.

Behind the scenes, the software logs the transaction, deducts the item from the inventory, updates stock levels, and feeds the data into the system’s reporting and analytics. 

Settlement

At the end of the day, the business performs a batch settlement. The POS system sends all approved transactions to the acquiring bank, which then processes the payments and transfers the funds to the merchant’s account.

Types of POS terminal

There are two main types of POS systems: countertop (or cash wraps) and mobile POS terminals. While countertop terminals are the long-established point-of-sale system, mobile POS terminals are gaining popularity. Many retailers are opting to use a combination of both at their stores. 

Here’s an overview of the similarities and differences between countertop and mobile POS terminals. 

Countertop terminals

A countertop terminal, or cash wrap, is what we traditionally think of when we think of a POS terminal. The setup consists of a screen (usually as a tablet), card reader, barcode scanner, cash drawer, and receipt printer. 

Depending on its size, a store may have one or more cash wrap terminals. These terminals stay in one place.

Mobile terminals 

This alternative to a stationary cash wrap is becoming increasingly popular among retailers and their customers. As the name implies, mobile POS systems usually run on small, handheld mobile devices for maximum convenience.

They have all the same features as a cash wrap, but without the cash drawer. You can still collect cash payments with a mobile system if you have a cash register somewhere in your store. Mobile POS terminals let you help customers while they shop, give personalized recommendations, and look up inventory without interrupting the shopping experience.

What does a point of sale terminal do?

A POS terminal streamlines the sales process for businesses. It allows them to process and manage transactions where a customer makes a purchase.

POS terminals vary in complexity and functionality, but their primary functions generally include:

Payment processing

POS terminals can accept multiple payment methods like cash, credit cards, debit cards, contactless payments, and near-field communication (NFC)–enabled wallets like Apple Pay and Google Pay. Plus, they communicate with the financial institutions involved to authorize and complete the transaction, ensuring that funds are transferred from the customer's bank account to your merchant account.

Inventory management

A POS terminal stores your product catalog and automatically updates inventory quantities when a purchase is made. To check product availability, you can either scan the barcode on the product or search for the item using its name, SKU number, or a keyword.

Some advanced POS systems can automatically update inventory levels in real time as transactions occur. This helps you monitor stock levels and have enough stock to serve your customers.

Data and reporting

Reporting is another way POS terminals facilitate operations. The POS collects and keeps track of data about every transaction and product. It can learn a lot about your business, such as which products are the most popular, when the store is the busiest, or which of your staff members is responsible for making the most sales. 

Use these analytics for inventory management, sales analysis, generating reports for accounting, tax purposes, and to reach the right business decisions faster.

Printing receipts

POS terminals can print or send digital receipts to customers electronically via email or text upon completion of a transaction. 

Employee scheduling 

In addition to managing and monitoring inventory and finances, some POS terminals integrate with retail scheduling tools, which incorporate real-time sales data into the employee scheduling process. This way, retail store managers can accurately forecast busy periods and schedule staff accordingly. 

Loyalty and rewards

A POS terminal with built-in loyalty software enables retailers to reward their best customers. Such systems simultaneously track information on customers’ shopping preferences, and who is buying what items and how frequently. With this data, retailers can design loyalty and rewards programs and ensure a loyal customer base.

Email shopping carts 

Adding items to a shopper’s cart is easy with a POS terminal. You can scan an item’s barcode or search for it in the POS system to add the item to an in-store order. After adding the item to the POS at checkout, the system will calculate the subtotal and total after applying fees, discounts, and tax.

Shopify POS, for instance, offers an Email cart feature, which lets a retailer create a cart and send the shopper an email with a summary of their cart and link to the store’s online checkout. This allows the shopper to complete their checkout online after which the transaction appears as a completed order on the Orders page in Shopify.

Best POS terminals

The right POS terminal, with all the right features, can make managing inventory, pricing, and transactions easy. But with so many options available, it’s easy to get confused. To help you choose, we narrow down the best POS terminals for retail businesses, including their best features, pros and cons, and price.

Shopify POS

Shopify POS is a comprehensive POS system that works in-store and online, simplifying daily operations and helping you build customer relationships. 

The POS terminal comes equipped with an array of robust features, including payment processing, advanced inventory management, staff performance tracking, ecommerce integrations, and reporting and analytics tools. 

You can capture customer data with each sale and the terminal will update orders and stock levels. This makes it easier for you to build customer profiles, nurture lasting relationships, and create targeted and impactful marketing campaigns.

Shopify POS also lets you integrate your physical store sales with your online ones. You can also benefit from its omnichannel selling feature to sell everywhere, track sales, and get retail reports on your business’s performance. Not to mention, when everything is connected, you can easily leverage omnichannel opportunities, like allowing customers to pick up online orders in store.

Price: 

• POS Pro: Starting at $89 per month
• POS Lite: Starting at $5 per month

Square POS

Square POS is a cloud-based system that includes a built-in payment processor and ecommerce tools. The terminal’s ecosystem includes a wide range of features that let you scale your retail business easily. 

Square also offers marketing, inventory and team management, and reporting tools in both the desktop and mobile POS. The terminal also includes Photo Studio—a free photo-taking and editing app for iPhone that lets you take photos for marketing or to improve the look of your online store. 

Price:

• Hardware: $299
• Software fees: $0-$89 per month 

Lightspeed

Lightspeed POS is a cloud-based commerce platform with inventory and analytics tools for retail and restaurant businesses. The terminal is easy to use and enables retailers to manage stores, teams, suppliers, and inventory from one place. 

Lightspeed POS also comes with ecommerce functionalities, reporting capabilities, and integrations with popular business apps, like Xero, Gusto, BigCommerce, and Mailchimp.

Price: 

• Software $168 per month

Clover 

Clover POS is an all-in-one terminal suitable for small businesses, such as retailers, service businesses, and restaurants. The terminal comes with the Clover Go app, which lets you manage your business from anywhere by creating orders, accepting payments, and texting receipts to your customers.

Price:

• Hardware :$599-$799
• Software: $14.95-$69.90 per month

KORONA POS

KORONA POS is a cloud-based terminal that’s ideal for businesses with special processing needs or those shopping around for the lowest rates. 

The system is built with high-volume, high-risk, or high-turnover retailers in mind and can work with any processor of your choice. It’s also equipped with ID scanning for age verification and security, and loss prevention tools to minimize losses of any kind, including spoilage, shoplifting, supplier mistakes, and internal theft.

Price: $69 per month

How to choose the right POS terminal

Which type of point-of-sale terminal is right for your business? Is it a countertop (cash wrap), a mobile POS, or a combination of both? The last thing you want is to get stuck with something that’s not the best fit for your business. 

Apart from the industry-specific features, here are 6 factors to consider when shopping for a POS terminal for your business.

Payment methods

Select a POS terminal that lets you accept all major debit and credit cards and digital payments, such as Google Pay and Apple Pay, online, or contactless payments to complete customer transactions. Most POS terminals accept several payment methods, but some allow users to pay with gift cards and even split the payment among other payment methods.

When you make it easy for shoppers to pay you, they tend to buy more, which can earn you more repeat business and improve cash flow.

Fees

POS terminals combine software and hardware, so the cost of purchasing one varies. Most POS terminals let you pay either a monthly or annual fee. 

Your payment card processor will also charge a fee for each transaction, in hidden and monthly fees. In many cases, what you pay per transaction will vary based on the credit card the shopper uses. 

Check whether your POS terminal provider offers integrated payment processing before choosing a payment processor. For instance, Shopify Payments is a standard feature in all Shopify POS plans and has no sign-up or setup fees.

Integrations

Using separate systems to manage your retail and online store can create a messy customer experience. Some POS solutions have native software that locks you into their tools.

To avoid such pitfalls, explore POS terminals that seamlessly integrate, communicate, and work in perfect harmony with other platforms and business software applications. These include your inventory management system, accounting software, and e-commerce platform. 

For example, when a shopper makes a sale through your POS terminal, the system automatically updates stock levels in your inventory management software, then reflects the sale in your accounting software. 

Connectivity

Connectivity is critical to a superior customer experience. Consider a POS terminal with multiple connectivity options via wired, WiFi, or Bluetooth connections that can make payments easy and quick.

Flexibility 

Some POS terminals have an offline mode and local data storage, which gives retailers flexibility and assurance of continued operations in the absence of an internet connection. Check whether the POS terminal you’re considering can work offline and has built-in security measures and back-up procedures to protect data during offline transactions.

Security 

Retail businesses deal with personal data and payment information. 

Shortlist options with the latest security features, such as end-to-end encryption, user authentication, and data tokenization, and is compliant with all laws and regulations, particularly Payment Card Industry (PCI) data security standards. 

Safeguarding such sensitive data and information protects your business from security breaches, unauthorized access, and cyber threats, while reducing the risk of fraud.

Process in-store payments with your POS terminal 

From mobile POS terminals to stationary cash wraps, and a la carte hardware setups to out-of-the box payment solutions, you have many options as a business owner. Whatever your business needs are, Shopify has a POS terminal solution for you.