Building Your Business Business Tools Point-of-Sale Systems (POS) for Inventory Management and More Track your inventory whether in the store or on the go By Rosemary Carlson Updated on September 20, 2022 Fact checked by Lars Peterson Fact checked by Lars Peterson Website Lars Peterson is a veteran personal finance writer and editor with broad experience covering personal finance, particularly credit cards, banking products, and mortgages. He has been writing and editing for more than 20 years and has a knack for digging deep into a subject so he can make it easier for others to understand. As an editor for The Balance, he has assigned, edited, and fact-checked hundreds of articles. learn about our editorial policies Share Tweet Pin Email In This Article View All In This Article What Is a Point-of-Sale System? How a Point-of-Sale System Works POS Systems in Retail Stores POS Systems in Restaurants POS for Inventory Management Popular POS Systems The Bottom Line Photo: Spiderstock / Getty Images A point-of-sale (POS) is the location where customers of a small business exchange money for the products or services sold by the small business. A POS transaction occurs when a customer buys or returns a product or service and occurs either at a brick-and-mortar store, on a mobile app, or in online checkout. Key Takeaways A point-of-sale system (POS) facilitates the transfer of payment between customer and business.A POS may be as simple as a cash register, or as complex as a networked computer system that links payments with inventory and more.Modern POS systems involve multiple business operations in addition to payments processing, including inventory management and marketing and promotion.There are a number of viable free or low-cost POS systems available that are suitable for small businesses. What Is a Point-of-Sale System? A POS may be a simple cash register, a single computer, or an integrated computer network with point-of-sale software. It may also be a mobile device like a laptop, tablet, phone, or specialized terminal that can be used remotely for online sales transactions. POS terminals may be either stationary units tied to a computer inside a brick-and-mortar business, a mobile unit like an iPad, or a unit for online transactions. POS systems may be used in a variety of ways. They are most useful for small businesses that sell products. POS systems that track inventory are especially useful in businesses that sell products or those use products they want to track in their production process. These systems are a useful tool in the toolbox of businesses that engage in inventory management. How a Point-of-Sale (POS) System Works POS isn't a simple cash register or cash box anymore, unless yours is the smallest of businesses or a home-based service operation. Most businesses, even those providing services, need a more sophisticated cash management system in order to track sales, manage inventory, administer customer loyalty and gift card programs, and generate reports, to name a few. If your business sells one or more types of products, or if it is a service-oriented business that uses inventory in its production process, you will quickly see that your business needs help tracking its inventory. If you sell online or sell away from your brick-and-mortar store, then investing in a good POS system can be worth its weight in gold to you. Note POS systems also make the no-contact transaction possible, whereby you don't even need to handle the customer's credit or debit card. POS Systems in Retail Stores POS systems are useful in retail stores, and are generally located where customers pay for the inventory they are buying from your store. At the least, a retail operation's POS system needs to consist of a terminal, a scanner for barcodes, a credit card processor, and a printer for receipts. Useful features include: Ability To Track Inventory Nothing can drag down the profitability of a business like carrying the wrong amount of inventory. An inventory tracking system as part of a POS system can help a business know when to order inventory to prevent stockouts and how to avoid having too much inventory on hand, which can eat into profitability. Generation of Sales Reports Retail stores need to be able to view sales data on a weekly, monthly, or yearly basis. They should be doing industry analysis along with trend analysis to find out if their inventory management is hitting its mark. Marketing and Customer Service It is important for many retail stores to keep customer data on hand in order to make shopping a more personal experience. POS systems can do that for you while also giving you the ability to create advertising and marketing plans for your business. You can also use it for loyalty card and marketing programs like generating discounts and coupons for customers. POS Systems in Restaurants POS systems are often used in restaurants. Like retail stores, restaurant POS systems should have the ability to generate sales reports along with having strong marketing and customer service features. Restaurants need two additional features: Restaurant Back Office Inventory Management Restaurants may sell a few products at the register. Perhaps more importantly, though, inventory management as a software feature helps with tracking your stock and supply. The inventory feature should also support tracking those items in the kitchen that are used in the production process. Restaurant Time Management Restaurant activity moves fast and fluidly. The POS system in the restaurant has to be simple and efficient enough to maintain and utilize while making reservations, ringing up orders and sales, and providing receipts. POS for Inventory Management Using the right POS system for managing inventory is one of the best decisions a business can make. Particularly in retail operations, but also for any business that sells products, inventory management using a POS system can save money for small businesses. Inventory is the most expensive asset that a small business can hold. If businesses hold on to inventory too long, it may become obsolete. If they don't have enough inventory on hand, the business is in danger of stocking out and damaging customer goodwill. Note A POS system for inventory management can save money because it will tell the business owner when to order inventory and how much to order at a given time. Here are some tips for using effective inventory management using a point-of-sale system in your small business. A POS Can Reduce Ordering Costs The cost of ordering inventory is one of two costs associated with holding inventory of the product or products sold by a small business. A small business cannot maximize its profit without continuing to keep ordering costs low. They include a portion of wages and benefits for the person ordering the inventory, administrative costs, and costs of taking delivery. A POS system helps keep ordering costs low by telling you when exactly to order. A POS Can Reduce Carrying Costs Carrying costs are the costs of storing the inventory. These storage costs can be expensive depending on the product. Considerations are whether it needs special conditions for storage and the size of the product. Not only can storage costs be high if you have too much inventory on hand, but you can also run into the problem of obsolescence. Both can be a drain on business profitability. Perpetual and Just-in-Time Inventory Systems A perpetual inventory tracking system records adjustments to inventory balances after every transaction through POS inventory systems. A perpetual inventory system allows you to access the balance in your inventory account at any time. The just-in-time inventory system allows you to order inventory only as you need it. Both inventory systems may minimize the costs of ordering and carrying inventory. Advantages of Using POS Systems for Inventory Management Here are some advantages of using POS systems for inventory management: Automates keeping track of inventory: Both small and large firms benefit due to the costs associated with carrying too much or too little inventory.Generates reports automatically: Both sales and inventory reports can be generated for any time period.Increases business profitability: By lowering the costs of carrying and ordering inventory, the profitability of the business will improve.Allows for remote management: If a business has more than one location, the owner or manager does not have to worry about theft of inventory since the POS system keeps track.Allows for dynamic inventory management: The use of POS systems allows for the business owner to use just-in-time inventory management or a perpetual inventory system.No-contact transactions: This is important now and in the future. Popular POS Systems The following are some of the best POS systems for inventory management: Square Inventory Management Square is one of the best all-around inventory apps and it is free. It's fast and you can manage your inventory from anywhere. It also allows you to manage bulk inventory. You can load Excel spreadsheets into the application. This system sends you alerts if you are low on inventory. Square is particularly good for new and small businesses. Vend POS Inventory Management Vend, which is an iPad app and cloud-based, is perhaps the best POS app for retail inventory management. It can be used at checkout, out on the sales floor, and is also suitable for mobile use. Vend is widely used all over the world for retail inventory management. It is easy to use, intuitive and will scan barcodes. One downside is the price. Vend ranges between $69-$199 per month. TouchBistro Inventory Management TouchBistro Inventory Management was developed specifically for the restaurant industry. It is an iPad POS system that increases your efficiency since you can move around the dining room floor to take payments, take orders, and move tables. It is also affordable although you have to connect with TouchBistro to get a quote. Shopify Inventory Management Shopify is a popular inventory management app that can be powerful for e-commerce, and can be used for in-person transactions. You can also use it to create your online store. Prices start as low as $29 per month and go up from there depending on the features you need. The Bottom Line Today's POS is a far cry from the cash box of old. Today's systems touch on all aspects of running a business, from front of house to back office, and even to promotions and marketing. Was this page helpful? Thanks for your feedback! Tell us why! Other Submit Sources The Balance uses only high-quality sources, including peer-reviewed studies, to support the facts within our articles. Read our editorial process to learn more about how we fact-check and keep our content accurate, reliable, and trustworthy. Penn State Extension. "Considerations for Selecting a Point of Sale System." Vend. "Frequently Asked Questions." Shopify. "Set Up Your Store, Pick a Plan Later."