If you’ve never used POS System, you may feel a little overwhelmed. You should have heard that POS system is an effective modern tool – reduce paperwork, save time, run a business smoothly, etc.

But WHY?

Why is it effective? Why does it reduce paperwork, save time, and run the business smoothly? How? Does it have any “powerful” feature to work all these?

This today topic will help you answer all these questions: How does a POS system work?

Table of Contents

  1. Installation and Set Up
  2. Data Entry
  3. Inventory Management
  4. Customer Marketing
  5. Purchase Management
  6. Payment
  7. Report

Installation and Set up

First and foremost, to understand how the system will work, you can’t ignore the setup process.

The POS System often consists of the main server and one or more terminal stations. In brief, the system includes POS hardware with POS software.

How POS system works

Based on your business type, you may opt for different kinds of equipment specific to your business. The POS company will help you set up and integrate. You can ask them to install some add-on for your system if needed. Then, they will teach you how to use and maintain it.

Basically, you can understand the process as following:

First, you, or your provider, will set up the POS account. Then, you can get started with adding staffs, employees, or anything else that your business needs.

Then, set up the hardware sections. Although the hardware side will vary depending on your business types, in the most common setup, the iPad cash register will run the software to process sales. In order to make the software work well,  it will connect to a cash drawer, a receipt printer, or a barcode scanner – depending on which exact peripherals you want to use.  For example, some companies will pair a Bluetooth barcode scanner to the iPad cash register. It is similar to pairing a bluetooth headset to your cell phone. And, the data avenue between bluetooth and the connected device is also the same.

See more POS system Setup guide on this video list!

How POS works Diagram

pos system works diagram

See more POS system guide and diagram!

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Because the POS hardware is varied from business to business, no one can define the base or exact how POS hardware can work with each other. However, everything in POS software seems easier to understand the working base. In the most common way, the software will work as follows:

Bonus: Download this Ultimate Guide to know “How to choose a right EPOS system for your business”.

Data Entry

As you know, the POS systems can minimize the time you spend entering data on your customer details and product information.

Most of POS systems can only save you a significant amount of time after an initial “hard time”. You must enter each customer — old and new — to track names, contact information, and purchase history.

POS data entry

Don’t worry!

There are also some companies that provide a more time-saving feature. You just need to upload your customer excel file. Then, the system will automatically update and sync the data. This allows you to enter database with a single click instead of tracking the items by hand.

Inventory Management

If you want to know exactly which automobile parts you have on hand and where they are stored, you first must enter them into the system when they arrive in your store. Then, every time you use a part, you subtract it from inventory.

Most POS systems make this process simple. For example, you just need a scan/enter barcode to list things on your customer’s invoice. Then, the POS Software will subtract automatically from your inventory.

In addition, some softwares also provide alerts when certain inventory items get low. It means whenever your stock gets low, the systems will automatically notify you via email or notification on POS screen.

You can find out more detail about this feature here!

Customer Marketing

By tracking the purchases of your customers along with their contact information, you can design simple marketing strategies to help you gain more business.

The POS Software can integrate Loyalty Programs and Customer Information. It means you can easily help customers join your loyalty programs on checkout process, and create various events at the same time without afraid of over-controlling.

POS customer marketing

Besides, most systems allow automating email marketing as well as direct mail reports, helping you compose and send email directly from your POS system.

It’s also helpful in face-to-face communication with your customers. When a customer comes in, you can see his past transactions immediately and ask if he was satisfied with his most recent transaction, using his specific information.

Most systems allow you to enter notes as well, such as a spouse’s name or the customer’s birthday. Customers love being recognized and cared about their important days when they do business, so these little touches help keep them coming back.

Purchase Management

Why do you need POS system take part in your purchase process? And if it takes a role in it, then how does it work?

Here are the answers:

Just imagine.

A customer steps up to the register to check out. If items are rung up, the employee will scan items with a barcode scanner. Once the items are scanned, they will be added to the transaction. When all of the items are added to the transaction, the employee will select the payment type, complete the sale and print or email the customer a receipt.

However, the story doesn’t stop there.

Behind the scenes in the software is where all the real action happens. All of the added items will be deducted from the inventory and recorded in Sales Reports. If there is any discounts or modifiers, those will also be recorded not only in reports but also from customers management system.

Lastly, all of the sales transaction will be “exported” in the X and X reports, shift summary, transaction report and even your analytics dashboard. These databases will provide an insight into business performance and help you get a more effective plan.


POS payment
Payment Methods.

First, you have to set up the payment methods in your software. The admin/store owner can create various payment methods in the backend and allow them to show/hide on the POS screen for staffs.

With payment via cash, the work will process as usual. The staff will receive cash from customers, create invoices for them and put the money in the “cash box”.

With payment via credit card, it will be more “dangerous” a little bit if you are not using EMV. If you use EMV, then the work will process safely as usual. The staff will enter/swipe the card, create an invoice and the money will be saved in your “online cash box”.

Besides, some companies also support “Cash Split”. It means customers can use more than one methods at the same time.


A major feature of POS systems is running reports.

As a business owner, you need to spend a huge amount of time reviewing reports, managing inventories, stores, staffs, customers and “many many more” myriad aspects in your business point of sales.  

POS systems typically come with standard reports such as the cost of goods sold, gross sales, low inventory, existing inventory, customer purchase history and item-specific sales reports, which can be handy if you run specials during the month.

After that, all reports typically can be transferred automatically to your accountant or your separate financial tracking software. You do not need to enter every paper transaction at the end of the day.

POS report

You should be able to customize these reports and create new ones to help you get a true snapshot of how your business is doing.

Despite all these smooth running and amazing functions, many reports have shown that more than half of retailers do not use POS system. Instead, these merchants use manual methods such as cash registers, QuickBooks and Excel. Why? Because they are overwhelming to implement a new technology. Because they are afraid of losing critical data during transiting to the new one. And many other reasons for not changing.

However, the core reason for this problem is LACK OF KNOWLEDGE. In other words, store owners do not know how to choose a right one.

To sum up

Although POS systems vary among each business types, the basic components and process – data entry, inventory management, customer marketing, purchase management, payment and report,  seems to be the same. To strongly understand how your POS systems work, you may take action now with your POS systems. Nothing is better than practicing after reading.

If you are still considering to own one, you can read this article to understand how to consider the right one for your business.

After all, If you enjoy the article, you can share this with your colleagues and friends. If you have any more knowledge about POS, comment below to share with us and other people.

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