A point-of-sale (POS) system is a combination of hardware and software that facilitates sales transactions at a business location. It's where a customer pays for goods or services. The functionality of a POS system can vary, but it typically includes the ability to process sales transactions and accept payments. Some can track inventory and manage customer data. The Australian POS market was valued at more than US$515 million in 2023 and is expected to grow at a compound annual growth rate of almost 12.5% until 2028.

Below, we'll share what businesses need to know about Australian POS systems: their components and how they work together to facilitate transactions; the risks and benefits of POS systems; and how to choose the right one for your business.

What's in this article?

• POS system components
  
• How does a POS system work?
  
• Benefits of using a POS system
  
• Challenges with POS systems
  
• How to choose a POS system
  

POS system components

POS systems consist of hardware and software that work together to accept payments. Here's a breakdown of each component.

Hardware

• POS terminal (computer or tablet): This may be a traditional computer, an all-in-one touchscreen unit or a versatile tablet. It's the central hub of the system, where the POS software runs. Electronic Funds Transfer at Point of Sale (EFTPOS) machines are common in Australia.

• Monitor or display: This is the POS interface, on which the cashier can view item lists, prices and transaction details. A separate customer-facing display can improve engagement.

• Barcode scanner: This scans product barcodes and adds the items to the sale.

• Cash drawer: This stores cash, cheques and receipts securely. It often connects to the receipt printer for automatic opening once the transaction is complete.

• Receipt printer: This prints itemised receipts for customers, providing a record of the transaction.

• Credit card reader: This processes payment methods, including chip-based (EMV) cards, swipe cards and contactless near-field communication (NFC) payments, such as Apple Pay or Google Pay.

Software

• POS operating system: This manages the hardware and software interaction, and is the foundation of the system. It's typically Windows, Android, iOS or a specialised POS operating system.

• POS application: This is the core software that provides the interface and functionality for the following features:

  • Product database: This stores product information, such as prices, descriptions and inventory levels.
    
  • Sales processing: This calculates totals and taxes, and handles discounts and promotions.
    
  • Inventory management: This tracks stock levels in real time and can automate reordering.
    
  • Customer relationship management (CRM): This maintains customer profiles and purchase history for customer engagement and loyalty programmes.
    
  • Reporting and analytics: This generates sales reports and identifies trends.
    

Additional POS system components might include scales for weighing fruit and vegetables in supermarkets or greengrocers; kitchen display systems (KDS) for sending orders directly to the kitchen in restaurants; label printers for printing barcode labels or price stickers; or employee time clocks for tracking staff hours and attendance.

How does a POS system work?

Every POS system has different capabilities, but they generally process transactions according to the following steps:

• Scanning: The product is scanned using a barcode scanner, which sends the product information to the POS software.

• Retrieving product information: The POS software retrieves the product details, including the price, from the database. It then calculates the total cost of the items being purchased.

• Completing payment: The customer pays using their preferred payment method (e.g. cash, credit card or debit card). The POS processes the payment by communicating with the payment gateway or bank to approve the transaction.

• Generating receipt: Once the payment has been processed, a receipt is generated and either printed or sent via email or text message.

• Updating inventory levels: As sales are completed, inventory levels are updated in real time to maintain accurate stock levels and inform ordering schedules.

• Reporting: POS software can create reports and analytics from the data collected with each sale. Retailers can use this information to understand sales trends, track best-selling items, manage employee performance and make informed business decisions.

Benefits of using a POS system

POS systems simplify payment processing for businesses of all sizes. Here's a rundown of the main benefits:

• Faster transactions: POS systems scan items and calculate the total cost efficiently for a faster checkout, which reduces waiting times for customers.

• Automated tasks: POS systems automate routine tasks, such as calculating sales tax, applying discounts and updating inventory – allowing staff to focus more on customer service.

• Minimised human error: POS systems minimise manual entry errors by automating data entry at various points of the sales process, from scanning products to calculating totals and taxes.

• Consistent sales experience: For businesses operating both online and offline, a POS system can unify sales channels – providing a consistent customer experience and pricing across all platforms.

• Real-time inventory tracking: POS systems update inventory in real time, preventing overstocking or items going out of stock.

• Transaction data: POS systems collect data about every transaction, which can be used to generate detailed reports on sales, profits, customer behaviour and more. For example, businesses can use detailed reports on how well various items are selling to make purchasing decisions, improve staffing levels, plan promotional events and tailor product offerings.

• Personalised interactions: Some POS systems can store customer purchase histories, allowing businesses to personalise service and make tailored recommendations.

• Accounting integration: POS systems can be integrated with accounting software to simplify the accounting process and ensure accuracy in financial reports.

• Security features: POS systems have enhanced security features to protect sensitive payment information and prevent fraud.

• Remote access: Modern POS systems are often cloud-based and enable access from anywhere, which can help businesses that are managing multiple locations or those with owners and managers who need to oversee operations remotely.

Challenges with POS systems

Along with their benefits, POS systems have inherent challenges. To mitigate common issues, prioritise choosing a POS system with a great vendor reputation and strong security features and encryption. Keep up with regular software updates and staff training, and consider having backup systems, such as offline payment processing options or manual processes in case of system downtime. Common POS system challenges are outlined below:

• Up-front costs: A POS system can require a substantial up-front investment in hardware, software and setup costs, which can amount to thousands of Australian dollars, depending on the system. Many POS systems also operate on a subscription-based model, requiring recurring licence fees.

• Maintenance and upgrades: Hardware may require repairs or replacement, and software updates might be needed for security patches and new features.

• Downtime: POS system malfunctions can disrupt your business, leading to lost sales and frustrated customers. Downtime can be caused by hardware failures, software errors or connectivity issues (most POS systems rely on a stable power supply and internet connectivity).

• Learning curve: Depending on the system, there may be a steep learning curve for staff to become familiar with all the features and functionality effectively. Implementing a new system requires comprehensive staff training, and there may be errors and slowed-down operations during the initial adoption phase.

• Regulatory requirements: Businesses must ensure that their POS systems adhere to industry security regulations, such as the Payment Card Industry Data Security Standard (PCI DSS). Compliance requirements can be complex and costly.

• Vendor dependence: Relying on the POS vendor for technical support and troubleshooting may potentially leave you vulnerable to vendor outages or price changes.

• Limited customisation: Some POS systems have limited options for modification based on your business's specific needs.

How to choose a POS system

Choosing the right POS system for your business is important: here's a roadmap to guide you through the selection process.

Identify your business needs

• Industry: POS system requirements differ between retail stores, restaurants, salons and service-based businesses. Consider features specific to your industry (e.g. inventory management for retail or table management for restaurants).

• Business size: Scalability is important. Consider a system that can grow with your business, whether you have a single shop or multiple locations.

• Budget: Determine your budget for up-front costs, ongoing licensing fees and potential hardware upgrades.

• Features: Make a list of the features you need, such as inventory management, CRM, reporting and analytics, and payment processing capabilities.

Research POS system options

• Software reviews: Read reviews and comparisons of different POS systems to understand their strengths, weaknesses and user experiences.

• Industry resources: Industry associations or publications often provide recommendations or reviews of POS systems that are relevant to your business type.

• Vendor demos: Schedule demonstrations with a short list of vendors to get a first-hand feel for the system's interface, features and ease of use.

Evaluate and compare systems

• Functionality: Ensure that the system has the features you need now and can accommodate your potential future needs.

• Ease of use: Consider how user-friendly the system is for your staff – especially those who are less tech-savvy.

• Hardware compatibility: See if the software works with your existing hardware or if additional equipment is needed.

• Scalability: Choose a system that can grow with your business – whether you might need to add more terminals, manage multiple locations or integrate it with new applications.

• Security: Evaluate the system's security features and its compliance with industry regulations.

• Cost: Compare the total cost of ownership, including hardware, software, subscription fees and any additional charges or merchant fees associated with payment processing. Don't be afraid to negotiate. POS vendors may be willing to negotiate pricing or offer additional features based on your specific needs and commitment.

• Customer support: Assess the quality and availability of customer support offered by the vendor.

• Trial experience: Many vendors offer free trials, allowing you to test the system and see whether it's a good fit for your business.

• Long-term use: While the initial cost is important, prioritise a system that can grow with your business and meet your evolving needs.

• Contract terms: Carefully review contracts and service level agreements (SLAs) to understand any hidden fees or limitations.