How does a point of sale (POS) system work?

Most point of sale transactions follow the same seven steps, from opening a sale to updating the records connected to it. The steps are held in a shop, a cafe and at a market stall, even though the setup in each one differs.

A sale begins when you or a staff member opens a new order in the point of sale system.

In a shop that happens when the first item is scanned. In a cafe it can start when someone taps a table number and opens an order. At a market stall you might key an amount straight into a handheld device.

Each of these create the digital record that holds everything connected to the transaction.

The items the customer is buying go onto the sale. You might scan a barcode, tap a product tile, search for an item or key in a price.

When products are already loaded in the system, the point of sale system pulls through the item name, the price and any options set up against it. A restaurant adds a burger with extra cheese. A clothing shop picks a size and a colour. A salon adds a haircut and assigns it to the person who did the work.

How much detail you capture depends on how you set up the product catalogue. Ring a sale up as a general amount and the system records the money taken without knowing what was sold.

The point of sale system adds the selected items and works out what the customer owes.

Depending on the system and its settings, that can include discounts, tips, service charges or the tax that applies. The total comes from the prices and rules you already entered, so the setup has to be right.

Before payment you can usually remove an item, change a quantity or apply an approved discount. Once it's correct, the sale moves to payment.

The customer can pay by cash, card, contactless wallet, QR code or another method you accept.

The point of sale system records the method because you'll later match your sales against the money you received. A R200 cash sale and a R200 card sale earn you the same revenue, and the money takes a different route to your account.

The customer can pay by cash, card, contactless wallet, QR code or another method you accept.

The point of sale system records the method because you'll later match your sales against the money you received. A R200 cash sale and a R200 card sale earn you the same revenue, and the money takes a different route to your account.

What happens next depends on whether the payment is electronic or physical.

How does a card payment work through a point of sale system?

For a card payment the point of sale system and the payment terminal do different jobs. The point of sale system records what is being sold. The payment terminal captures the customer's payment method and sends the transaction for authorisation.

A typical card payment follows this path:

1. The amount is entered on the payment terminal or sent to it.

2. The customer taps, inserts or swipes their card, or taps a supported digital wallet.

3. The payment information and the transaction amount go to the payment provider or acquiring institution.

4. The request travels through the relevant card network to the bank or institution that issued the customer's card.

5. The issuer checks the transaction and either approves or declines it.

6. The result travels back to the payment terminal.

7. The point of sale system records the sale as paid if the payment is approved.

The issuer looks at whether the card is valid, whether the account has enough funds or available credit and whether the transaction passes its security checks. In South Africa, the institution that issues the card is called the issuer, and the participant that accepts and processes the transaction on your behalf is known as the acquirer, meaning the provider that takes the card payment on your behalf and passes it into the payment system. The Payments Association of South Africa explains these roles in more detail.

For what the device itself does at each step, read how card machines work with a point of sale system.

An approved card payment doesn't mean the money has reached your bank account. Approval confirms that the transaction can go ahead. Clearing, settlement and payout happen afterwards, depending on your payment provider's process and timelines.

What happens with a cash payment?

A cash payment needs no electronic authorisation. Your staff enter the amount received, the point of sale may work out the change owed and the sale is recorded as cash.

The system depends on the payment method being selected correctly. Record a cash sale as a card sale and your total sales still look right, but the cash drawer and the card records won't match at the end of the day.

Once payment has been accepted or recorded, the point of sale closes the transaction and saves the final detail.

These can include:

• The items or services sold.

• The quantity and price of each item.

• Discounts or other adjustments.

• The final amount.

• The payment method.

• The date and time.

• The staff member or device that handled the sale.

• The location where it happened.

• The transaction or receipt number.

The customer can then get a printed or a digital receipt. What the receipt shows, and how it reaches them, depends on the point of sale system and how you chose to set it up.

Completing the payment ends the customer's transaction and starts the updates inside your business.

If the features are configured, the point of sale system may:

• Reduce the quantity sold from your available stock.

• Add the transaction to your daily sales reports.

• Attribute the sale to a staff member or a location.

• Update a customer's purchase history or loyalty activity.

• Send sales information to connected business software.

• Add the transaction to the totals you use for end-of-day reconciliation.

One sale entered once can feed into all six of these, which a calculator and a standalone cash drawer can't do. 

These updates aren't automatic in every system. Products, integrations and staff permissions have to be set up correctly, and which of them you get varies by provider and by plan.

A completed sale is not the only point of saleable outcome. A point of sale system transaction moves through six common states: open, awaiting payment, paid, declined, voided and refunded.

The names and the rules vary by system. Check the current status before you retry a payment or start another sale. Investigate an unclear result first, because repeating the transaction can create a duplicate payment or a duplicate record.

A point of sale system does not store one vague number called "sales". One sale can create six connected records: sales, payment, stock, staff, customer and report data.

An error at checkout carries through to all six. A product rung up under the wrong item moves your sales report and your stock count at the same time, so check the item and the payment method before you close the sale.

A point of sale system runs the routine for opening, trading and closing as well as the individual checkouts.

Before trading

Your staff sign in, check that the devices are charged or connected and confirm that products, prices and payment methods are ready. If you handle cash, record your opening cash amount.

During trading

Every order or sale is entered as it happens. Staff record the correct items, payment method, refunds and other adjustments so the point of sale system's record stays close to what is happening in your business.

At the end of the day

You compare the point of sale system totals against your cash, card and other payment records, then investigate the differences and prepare for the next trading day. That comparison is called reconciliation, and it asks whether the money and activity each system recorded agree with what you expected.

What happens after the customer leaves?

After checkout, the point of sale system keeps the transaction as part of the business's sales history. You or your managerial staff can use it to see what sold, compare payment methods, review staff activity or prepare for reconciliation.

For card payments, your payment provider carries on with the financial side of the transaction. Authorised transactions are cleared and settled before the provider pays you on its payout schedule. The point of sale system sale record and the bank payout are related. They are two different records, made at two different moments.

That is why your point of sale total may not match a single bank point of sale. One payout can hold more than one transaction, and timing, refunds, fees or other adjustments can change the amount that lands. The treatment depends on your provider - some providers combine card machines and point of sale systems, which automates this reconciliation.

A void stops or cancels a transaction before it becomes a completed sale. A refund happens after a sale has already been completed and returns some or all of the value to the customer.

Recorded correctly, a refund can adjust the sales total, the payment record, the stock quantity and the customer receipt. Which of those moves depend on the system and on whether the returned item can go back into available stock.

A card refund also has a payment side. Recording a refund in the point of sale system doesn't necessarily move the money unless the point of sale system is connected to your payment provider and supports that action. Follow the provider's refund process and check the final payment status before you tell the customer it's done.

A point of sale system can update stock when you sell a product that’s linked to a stock record. If one item is sold, the system deducts the quantity assigned to that sale from the quantity on hand.

This works only when the product and its stock information have been set up correctly and staff ring up the right item. It cannot account automatically for every damaged, lost or unrecorded product. Physical stock checks are still useful for finding differences between what the system expects and what is actually on the shelf.

For a full explanation, read how point of sale systems manage stock and inventory.

A point of sale system report groups the information captured through individual transactions. Instead of adding slips or notebook entries, you can view the records together by period, product, payment method, staff member or location, depending on the point of sale system you selected.

The report is only as complete as the data entered. If staff fail to record cash sales, use the wrong product or choose the wrong payment method, the report may not reflect what happened accurately.

Learn more about what point of sale reports show.

No. A point of sale system records sales and the operational information connected to them. Accounting software organises the wider financial records of your business, including expenses, liabilities, tax information and financial statements.

The two systems can work together. If an integration is available and configured correctly, sales information can move from the point of sale system into the accounting system. You still need to check how information is grouped, which figures are transferred and how refunds, fees and different payment methods are treated.

A point of sale system transaction can happen anywhere you complete and record a sale.

It may take place at a shop counter, at a restaurant table, from a handheld device at a market or through an online checkout. The devices and payment method may change, but the underlying process is similar: identify what is being sold, calculate the amount, complete payment and store the transaction record.

If you sell in multiple channels, you should confirm whether systems share products, stock and sales information. Two channels can both record sales without automatically giving you a single view of your stock at hand.

point of sale system information lives on equipment at your business, online, or across both.

An on-premise system keeps its main data and software on site. A cloud-based system stores or synchronises the information online so authorised users can reach it from connected devices, from any location.

Some cloud systems hold information on the device temporarily and synchronise it later. Where the information lives affects remote access, backups, updates and what happens when the connection drops, and it doesn't by itself tell you whether a system suits you or is secure.

Read what a cloud-based point of sale system is.

A point of sale can store business information such as your products, prices, quantities, staff profiles, transaction times and the payment methods selected, and it can store customer information where you capture it and the feature is available.

Sales information and sensitive payment-card data are two different things. The point of sale system can record that a card was used and keep a transaction reference without storing the customer's full card details. Payment providers and merchants have to handle cardholder data under the security requirements that apply to their systems.

The PCI Security Standards Council states that sensitive authentication data, such as a PIN or a card's security code, must not be stored after authorisation. Use approved payment technology, limit access to your systems and understand which provider is responsible for each part of the payment-data flow. See the PCI Security Standards Council's merchant guidance.

The six common point of sale problems are these: the cash drawer and the report disagree, system stock is higher than shelf stock, a card payment is approved while the point of sale sale stays open, a customer appears to have paid twice, a sale sits under the wrong staff member, and recent sales are missing from a report. When your records don't match what happened in the shop, the cause usually sits somewhere in the transaction flow.

Treat these as examples rather than a diagnosis for every system. When something goes wrong, check the transaction status, the receipt, the payment method selected and whether the device has synchronised before you repeat or edit the sale.