The acronym POS stands for “point of sale.” As you might expect, it technically refers to the time and place where a transaction occurs. However, in the context of payments, POS is typically used to describe a physical or cloud-based point-of-sale system.
Key Takeaways:
- POS, which stands for “point of sale,” refers to the time and place a transaction occurs.
- POS transactions can occur online or offline. Offline (i.e., in-person) POS transactions are the more common of the two types.
- A working POS system must include dynamic software, handy business management tools, and, ideally, loyalty programs and staff support.
- POS transactions made with a debit or credit card are, in fact, traceable.
Business owners need to understand point-of-sale transactions and the role they play—or could play —in daily operations. POS systems are full-service devices, both in-person and cloud-based, that help you manage staff schedules, floor space, inventory, and more. When you understand the POS demands of your business, you become better equipped to choose the right provider for you.
Below, we’ll go over everything you need to know about point-of-sale/POS transactions and how to make a POS system work for you.
What Is a POS Transaction?
At its most basic level, a POS transaction is the moment when an exchange of a product or service for payment is finalized. POS transactions can include a range of payment methods, including credit and debit cards, cash, mobile payments, and loyalty points.
Point-of-Sale Transaction Types
Before the dawn of the online age, point-of-sale transactions typically had to occur in person. However, thanks to the explosion of digital technologies and payment options over the last 30 years, POS transactions have gone virtual. Here are the two main kinds of POS transactions:
Online
In this context, online point-of-sale transactions are pretty much what they sound like—any sale verified online via the cloud. Customers usually use credit cards for these transactions, but they can also be completed using debit cards, cryptocurrency, or online money transfers via payment platforms like PayPal.
Offline
Offline POS transactions are the most common type, occurring in person where customers use a POS system to pay. This allows business owners to authorize payments, thus reducing fraud. Even without an internet connection, the POS system can store customer info and send it to the processor once reconnected.
POS Transaction Example
You may have an idea of what a POS transaction is, but if you want to know what one looks like, here are two examples: Let’s say you operate a farmers market vendor that sells homemade hot jellies and jams. A customer approaches and wants to purchase your peach-habanero best-seller. They insert their credit card into your POS device, and you give them a jar of jelly. Boom, that’s a POS transaction.
Alternatively, you may operate an online retailer that sells CBD sleep aids for dogs. After browsing your products, a pet owner chooses the one that fits their needs, inputs credit card information, and presto: another POS transaction has been completed.
POS Debit vs. POS Credit Transactions
Debit and credit transactions differ in several respects, the primary discrepancy being that if you want to make a debit purchase, you must have the purchase amount available in your checking account. With a credit transaction, your card issuer loans you the purchase amount, so you only need to have available credit rather than direct access to funds.
Debit transactions typically carry fewer fees from a business owner’s perspective. This is because an amendment to the 2010 Consumer Protection Act limits banks’ fees for debit transactions.
That limit comes to 0.05% + 22 cents per transaction, but you should always be aware of additional costs that your POS system provider and merchant services provider may charge. Credit card fees, on the other hand, vary wildly between POS system providers, card issuers, and transaction mediums. Always research the fees a POS provider charges for credit, as these can add up and count against your bottom line.
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How to Reconcile a POS Transaction
POS reconciliation is one of those annoying accounting jobs that has transformed thanks to technological innovation. At a basic level, POS reconciliation means ensuring that your POS sales records match the funds received from customers.
Basically, you look at two sets of numbers—the payments you’ve received and those you’ve recorded—and make sure they are equal. This part of the process ensures you will catch any potential fraud or accounting errors, so establishing a regular reconciliation routine is vital. Most POS systems allow you to perform reconciliation tasks easily, as you can track payments and inventory electronically.
What Is a POS System?
Now that you know what a POS transaction is, you may be wondering what exactly constitutes a POS system. A POS system combines hardware and software that accepts and processes payments.
If you’re a cash-only business, your system may be no more than a cash register and receipt printer. If you have a more complicated business model that can accept electronic payments, you’ll need the following hardware to process electronic transfers:
- Card readers
- Payment terminals
- Relevant software
Key Components and Features of an Effective POS System
What should you look for when searching for the best POS system for your small business? Continue reading for the top features to consider.
Software & Business Management Tools
- Software is essential to any point-of-sale system. Simply put, it allows the operation itself to function.
- The software your particular POS system provider offers will allow you to process electronic payments and grant you access to a wide range of external applications and third-party services that may be tailored to your business’s unique needs.
Integrated Payment Processing
- Many POS providers offer integrated payment processing, which accepts the transaction and communicates with banks and credit card providers to execute the funds transfer.
- Some high-risk merchants may need a separate payment processor that caters to their needs. In that case, these merchants must ensure the POS system they choose is compatible with third-party payment processors.
- For most other merchants, an integrated payment processing system can streamline sales and reduce costs.
Loyalty Programs, Staff Management, & Support
- Other features POS systems may offer include loyalty programs, staff management, and support.
- Some systems simplify the storage of customer contact and purchase information, making it easy to automatically offer rewards and deals. For example, a restaurant owner may require a POS system that handles staff table assignments, hours, etc.
- Finally, since your focus should be on growing your business—not troubleshooting your POS system—it’s essential to choose a provider that offers customer support tailored to your specific level of expertise and experience.
POS System: Costs and Fees
The two main upfront costs associated with POS systems are for hardware like credit card readers and terminals, and software, which can include amenities like monthly subscriptions to provider services.
Some providers offer packages that don’t require a monthly subscription. Fees are another cost associated with POS systems. They come primarily in the form of transaction fees for credit and debit purchases. As mentioned earlier, debit fees are capped by the federal government, while credit card fees go up and down depending on the provider. There may be auxiliary fees associated with add-ons, third-party integrations, and other services your provider offers.
Our advice? Ask about fees upfront to better understand the total cost of a POS system. Evaluate your professional needs and choose accordingly.
Understanding Merchant Descriptors
Have you ever looked at a bank or credit card statement, seen a charge, and wondered what it was? That’s a merchant descriptor. Descriptors show on the customer’s end, so it’s crucial to ensure clarity to avoid confusion and any unnecessary fraud claims. There are a few main kinds of descriptors to consider, which we’ll cover below.
Static
Descriptors
We have transparent pricing, frictionless onboarding, and rapid decisioning – No surprises, no stress.
Dynamic Descriptors
Whether you’re a marketplace or an SMB, we provide everything from payment orchestration.
Soft
Descriptors
Get support on your terms with our self-service tools or on-call client success team.
How to Choose a POS System for Your Business
Business owners should always thoroughly understand their unique needs and desires before choosing a POS system. The main components to understand are your hardware and software requirements. Beyond that, a near-infinite number of add-ons, integrations, and other bells and whistles may help your business operate more smoothly. One place to start is to look at which systems other merchants in your industry use, as many POS providers cater to specific types of businesses.
Frequently Asked Questions
What does POS mean in banking?
In banking terms, POS still translates to point-of-sale. If you see “POS” on your banking statement, it means you used your debit card to make a purchase.
How do I get a POS refund?
You’ll need to return the purchased product to the merchant and comply with their return policy for a refund. Usually, the refund is issued through the POS system and will come out to the exact amount you paid for the product. A POS refund can take several days to show up on your account. Contact your bank or card provider to verify the transaction if you suspect fraud.
Are POS transactions traceable?
POS transactions are traceable if you use a credit or debit card. Looking at your bank statement and checking your receipt for confirmation or tracking numbers will help with transaction tracking.
If you use cash and don’t input any identifying information into an electronic system, your point-of-sale transaction will likely not be electronically traceable.
What does a POS withdrawal mean?
A POS withdrawal occurs when you use a debit card to take cash from a POS terminal. You have likely encountered this feature at grocery stores, where POS terminals may ask if you want cash back with your purchase. Not all POS systems or debit card-issuing banks offer this feature, so it’s best to check with your provider first. And, of course, you must have funds available in your account to initiate a withdrawal.
What does POS deposit mean?
A POS deposit is a deposit from a point-of-sale terminal. Customers typically see POS deposits on their bank statements when they receive a refund from a debit card transaction.
