POS Terminal: What It Is and How It Works (2023)

pos terminal

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.


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What is a POS terminal?

A POS terminal is a combination of hardware and software that, at its most basic level, processes all of your store’s transactions. With a POS terminal, your store can sell products, accept various payment methods, collect critical business data, and simplify operations.

pos terminal

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

What does a POS 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:

  • Accepting various forms of payment: 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.
  • Processing transactions: It also communicates 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.
  • Recording sales data: POS terminals keep track of sales data, which you can use for inventory management, sales analysis, and generating reports for accounting and tax purposes.
  • Managing inventory: 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.
  • Generating receipts: POS terminals can print or send digital receipts to customers.
  • Integrating with other business systems: Many POS systems have integrations with other business tools, such as accounting software, customer relationship management (CRM) systems, and bar code scanners, to improve business operations.

Other features of a POS terminal

Now you understand what a POS terminal is composed of. Here’s a deep dive into how these components work together to help you run your retail store.

Look up product and inventory availability

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 bar code on the product or search for the item using its name, SKU number, or a keyword.

Add items to a customer’s cart 

Adding items to a customer’s cart is easy with a POS terminal. Just like when you look up item information and availability, you can add products to an in-store order by scanning their bar codes or searching for them in the POS system.

After you’ve added all of the items a customer is interested in to the POS at checkout, the POS will calculate the subtotal and total after tax and discounts have been applied.

Accept payments and complete checkouts

When the customer finds out their purchase total, they pay via their preferred method (of the payment types your POS terminal accepts). Then, the POS processes the payment. This can involve the card reader verifying a card payment or the cashier accepting cash and giving back change. At the end of the transaction, the customer receives a receipt as proof of payment.

Manage daily store operations 

A POS terminal does so much more than just complete sales; it’s an essential part of a store’s daily operations. 

A POS system can, for example, assist with inventory management by letting staff know what’s in stock and how much of each product is left. A POS terminal can alert you when you’ve reached your reorder point and automatically place replenishment orders.

Reporting is another way POS terminals facilitate operations. The POS collects 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 to reach the right business decisions faster.

Access customer information 

POS terminals don’t only collect data about your small business. They also gather information on your customers, like purchase history, frequency, and order size.

This data is useful for marketing purposes. You can use it to send customers offers they won’t be able to resist. For example, if a customer purchases a video game console from your store, you can use that purchase history information to send them offers for games and accessories compatible with that console.

Customer data can also be used to enhance the shopping experience. When a sales associate can look up a customer’s past purchases, they can offer personalized recommendations. For example, a sales associate at a shoe store can show a returning customer new arrivals that are similar to models they’ve purchased in the past, and bring out the right size without being asked.

Types of POS terminals

There are two main types of POS systems: cash wraps and mobile POS terminals. While cash wraps 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 cash wraps and mobile POS terminals. 

Cash wrap POS terminal 

A cash wrap is what we traditionally think of when we think of a POS terminal: a countertop checkout point. A cash wrap setup consists of a screen (usually as a tablet), card reader, bar code 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 POS terminal 

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 of 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.

How to choose the right POS terminal for your store

Which type of point-of-sale terminal is right for your business? Is it a cash wrap, a mobile POS, or a combination of both? Consider what kind of checkout options you want to give customers, the payment types you want to be able to accept, and how much you want to spend on your POS terminal to find the best fit for your store.

Store checkout options 

First things first: Do you want to offer customers a traditional, stationary checkout experience, or do you want to give them the option to check out from anywhere in the store? Or do you want to be flexible and let customers check out however they’d like?

Customers are familiar with the experience of a cash wrap POS terminal. Shoppers know to take the items they’re interested in to the checkout counter. For stores that want to offer this familiar experience, cash wraps are a good option. All transactions, including looking up inventory information, happen at the cash wrap.

With a mobile POS terminal, every employee turns into a walking checkout point. Staff can approach shoppers to help them find items they need and make personalized recommendations by looking up the customer’s purchase history. Then, when shoppers are ready to pay, they don’t need to queue up at the checkout counter. Instead, they can finish the transaction with the employee through their mobile POS.

A hybrid checkout option is a great option for stores that want to ease customers into a new shopping experience. Customers will still get the familiar checkout experience, but can also receive enhanced assistance from staff anywhere in the store. This model is also a good idea during busy seasons, like the holidays, when lines can get long at the checkout counter. When every employee is equipped with a mobile POS terminal, they can bust lines with ease.

Accepted payment methods

Next, think about which payment methods you want to be able to take at your store. 

The benefit of a traditional cash wrap POS terminal is that they usually come with cash registers, which enables you to accept cash payments. However, storing cash on premises can make your business vulnerable to theft.

With a mobile POS, you can accept non-cash payments like credit cards, gift cards, and digital wallets. These are faster and safer payment methods than cash. 

Terminal cost

The final thing you should consider when choosing a POS terminal is its cost. Different setups have different price tags, and they can vary a great deal.

A cash wrap POS terminal setup is usually the more expensive option. Below are the hardware costs you’ll incur with a traditional POS:

A build-it-yourself mobile POS terminal setup is more cost efficient than a cash wrap. You’ll just need a smartphone (iOS or Android), which typically costs several hundred dollars, depending on the device, and a card reader (starts at $49). 

The most cost effective option is an all-in-one mobile POS system. Shopify POS Go, for example, costs $399 in the US and is equipped with everything merchants need to transact, manage inventory, gather customer data, and more.

These are just the POS hardware costs, so make sure to save room in your budget for POS software costs. At Shopify, POS software starts at $29 per month.

Find the best POS solution for you

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.


Sell online and in-person with Shopify

Shopify POS is the easiest way to unify ecommerce and store sales and data. Have all the tools you need to manage inventory, track performance, understand customers, and sell everywhere in one easy-to-understand back office.


POS terminal FAQ

What is the cost of a POS terminal?

The cost of a POS terminal varies depending on its features, functionality, and the provider, with prices ranging from $100 to over $1,000. Ongoing costs like monthly fees, payment processing charges, and software updates can also contribute to the overall expense.

What is an example of a POS terminal?

An example of a POS terminal is Shopify POS, a popular retail POS that combines hardware and software to facilitate payment processing, inventory management, and customer engagement.

What is the difference between POS and terminal?

POS (point-of-sale) is a system used by businesses to process customer transactions. It typically consists of hardware such as a cash register, bar code scanner, and touch screen display, and is often integrated with software to track sales, inventory, and customer information.
A terminal is a device used to access a server, usually through a network. Terminals are typically used to run text-based applications, such as command-line tools, or to connect to other computers. Unlike a POS system, terminals are not typically used to process customer transactions.

What are the two types of POS terminals?

There are two main types of POS terminals: traditional and mobile. Traditional terminals are stationary systems with dedicated hardware, like cash registers and bar code scanners. Mobile terminals are portable devices like smartphones or tablets with cloud-based POS systems, enabling on-the-go payment processing and business management with just a WiFi signal.