What Is a Point of Sale (POS) Transaction? Everything You Need to Know

4 April, 2023
12:30 mins
Brett Johnson, AVP, Global Enablement

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12:30 mins

Table of Content

Key Takeaways
Introduction
What Is a Point of Sale (POS) Transaction?
How Does a POS Transaction Work?
What Are the Different POS Transactions Types?
How Can Merchants Receive Point of Sale Transactions?
How Are POS Transactions Handled in a Business?
Conclusion
FAQs on POS Transactions 

Key Takeaways

  • POS transactions are vital for completing purchases, whether in-store or online, providing valuable data for financial management and analysis. 
  • Understanding different types of POS transactions (online, offline, and returns) helps businesses adapt to customer preferences and optimize their payment processes.
  • Regular POS reconciliation ensures accuracy, stability, and security in financial transactions, reducing errors and identifying unauthorized activities promptly.
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Introduction

In today’s changing world of buying and selling, Point of Sale (POS) transactions are really important. They represent the crucial moment when a purchase is made and recorded, using advanced technology.

At this moment, money is exchanged, showing how crucial it is to understand the importance of these transactions and how they directly affect your organization’s finances.

In this article, we will explore POS transactions in detail, giving you the knowledge and confidence to handle them effectively. So, let’s start this informative journey together.

What Is a Point of Sale (POS) Transaction?

A POS transaction, or point of sale transaction, is a financial transaction that occurs at the point where a customer makes a purchase from a business. It involves the transfer of funds from the customer’s payment method, such as a credit card or debit card, to the merchant’s account.

These transactions typically take place in physical retail stores, but they can also occur online or through mobile payment systems. The purpose of a POS transaction is to facilitate the sale of goods or services and provide a record of the transaction for both the customer and the business.

To manage these transactions, businesses deploy a comprehensive system encompassing both software and hardware components, commonly referred to as POS or Point of Sale systems.

POS hardware typically includes elements such as a credit card reader, a cash register, or even a tablet. Simultaneously, the accompanying software diligently records transaction data and effectively integrates these sales into a company’s financial records.

How Does a POS Transaction Work?

Now that we have a solid understanding of what POS transactions are, let’s explore the mechanics of how these transactions actually work. Understanding the process will give you a clearer picture of how transactions flow and how they contribute to your financial management.

Here’s a simplified breakdown of how a typical POS transaction works:

Step 1: A customer shops for goods/products from a seller. Whether it’s a retail store, restaurant, or online marketplace, the customer selects the items they wish to purchase.

Step 2: The seller scans the goods/products and shares price information with the customer. Using a barcode scanner or manually entering the item details, the seller determines the total purchase amount and communicates it to the customer.

Step 3: The buyer makes the payment. The customer selects their preferred payment method, such as a credit or debit card, mobile wallet, or cash. They provide the necessary information or physically hand over the payment to the seller.

Step 4: A POS transaction is recorded. The point of sale system captures all the transaction details, including the purchase amount, payment method, date, and time. This information becomes a vital part of your financial records and provides insights for analysis and reporting.

It’s important to note that while this is a simplified overview, the actual process may vary based on the specific point of sale system and payment methods used. 

Here is an example of a POS transaction

The best example of a real-life POS transaction would be a supermarket. For instance, while you’re at a retail chain, you pick up a few goods and proceed to the checkout counter. At the checkout counter, the supermarket staff scans your chosen products and creates a receipt or a bill. Then, whenever you pay for those items with cash or a card, a POS transaction occurs.

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What Are the Different POS Transactions Types?

The types of POS transactions encompass online POS transactions, conducted over the internet; offline POS transactions, typically processed through physical terminals; and product returns, involving the reversal of a prior sale.

Let’s understand the three common POS transaction types in detail:

  1. Online POS Transactions

    When you make a purchase online, it falls under the category of online POS transactions. Let’s say you’re browsing through the Amazon app and decide to buy some jewelry. After selecting your items, you proceed to make the payment using your card or digital wallet. At this point, the POS payment is recorded. However, it’s important to note that in online POS transactions, the seller has to wait for the cash. This is because a request is sent to the card-issuing bank to either authorize the payment or debit the amount from the account.

  2. Offline POS Transactions

    On the other hand, offline point of sales transactions occur when you physically visit a store to make a purchase. Here, the merchants conduct credit card, debit card, and cash transactions while their POS system operates offline. Imagine walking into a local boutique and buying a few items. In this scenario, the seller receives the cash instantly as you make the payment directly at the store’s point of sale.

  3. Return of Products

    Sometimes, you may need to return a product due to issues like quality or other concerns. When this happens, a request for reversal is initiated. This means that a request is sent to the card-issuing bank to reverse the payment. The reversal can be partial or complete, depending on the circumstances surrounding the return.

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How Can Merchants Receive Point of Sale Transactions?

As a merchant, there are various ways for you to receive point of sale (POS) transactions. Here are some popular methods that can streamline your payment process and enhance customer convenience:

  1. Card Payments: Equip your business with a card terminal or mobile card reader to accept debit and credit card payments seamlessly.

  2. Mobile Wallets: Embrace popular mobile payment apps like Apple Pay or Google Pay, allowing customers to make contactless payments using their smartphones.

  3. Online Payment Gateways: Integrate trusted online payment gateways such as PayPal or Stripe into your e-commerce store to facilitate secure online transactions.

  4. Cash Payments: Accept physical cash payments by setting up a cash register and implementing proper cash handling procedures.

  5. QR Code Payments: Display a unique QR code for customers to scan and make payments swiftly, particularly useful for small businesses or pop-up shops.

By offering a variety of payment options, you can cater to the preferences and needs of your customers, ultimately enhancing their shopping experience and boosting your business’s revenue.

How Are POS Transactions Handled in a Business?

Now, let us understand how the day-to-day transactions are handled with a POS system and how cash is accurately reconciled from the POS payments.

What is POS reconciliation?

POS reconciliation is a crucial process wherein businesses match POS system transactions as shown on the company’s bank statement to that in their books. Once the payment is received from the point of sale, the sellers compare the POS data with the sales made per day/month/year to ensure complete accuracy and transparency in the process. In a nutshell, they compare the POS sales data with the cash inflows.

Importance of reconciliation for POS payments

Every type of POS transaction must have the following elements to ensure reconciliation:

Sales

Purchases

Receipts

Whenever a buyer buys a product, either online or offline, a sale is recorded.

The POS system closely monitors the number of products sold, the amount of cash received, the date and time of purchase, the employee handling the sale, and the customer information.

It records such information.

Whenever a buyer purchases goods and pays for the same, all purchase-related data is aggregated on the POS system.

After the buyer has made the payment, a receipt is generated by the seller for the buyer.

The receipt includes the amount paid, the number of items purchased, and the date and time of purchase.

Now the question arises, how often should you perform a reconciliation? It’s best to reconcile POS payments daily. Sellers might face roadblocks in manually aggregating POS data daily; that’s why cloud-based POS systems are the future.

Major processors such as Moneris have enabled cloud POS devices for customers who can walk in and make card transactions. The card information could be saved for future use, and the data automatically flows in daily from the ePOS systems.

What are the benefits of POS reconciliation?

Point of sale reconciliation plays a crucial role in the financial management of B2B sellers. It helps ensure accuracy, stability, and security in their transactions. Let’s explore the benefits of POS reconciliation and why it is essential for businesses like yours:

  • Reduce errors and ensure accurate budgets: Accounting can be a highly error-prone process, especially when dealing with a large number of accounts and processes involving several parties. POS reconciliation is important for B2B sellers, especially when witnessing high growth, as it enables sellers to identify errors in a timely manner and take immediate necessary actions. Frequent POS reconciliation also improves the accuracy of financial information. Thus, it helps ensure accurate vendor budgets and operating expenses, among others. 

  • Achieve stability in cash flow and accuracy in balance sheets: Timely point of sale reconciliation offers B2B sellers visibility into expenses during each cycle. This will help businesses make informed decisions to ensure cash flow

  • Better security and theft identification: It is imperative that businesses detect any anomalies in their transactions, such as unauthorized transactions. POS reconciliations enable businesses to spot unauthorized transactions and take necessary measures.

Conclusion

In summary, understanding the significance of POS transactions is crucial in today’s business landscape. By incorporating a range of payment methods, from cards to QR codes, within a POS transaction, you not only cater to evolving customer preferences but also ensure your enterprise’s agility and resilience amidst a swiftly changing market.

Embracing this shift enables you to elevate customer convenience, accelerate secure transactions, and ultimately safeguard your business’s future growth. To achieve this, acquiring a comprehensive understanding of POS transactions – from their nature and types to how they work – becomes imperative.

Furthermore, it’s vital to recognize that selecting the right POS system is pivotal for achieving seamless transactions, streamlining financial management, and enhancing customer experiences. A well-chosen system acts as a safeguard, preventing potential disasters that may arise if your point-of-sale system were to malfunction.

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FAQs on POS Transactions 

1. Are POS system transactions safe?

Yes, POS system transactions are generally safe when appropriate security measures are in place. POS systems are designed to handle secure transactions by encrypting sensitive data such as credit card information. 

2. Can a POS transaction be traced?

Yes, a POS transaction can be traced through bank statements.

3. What is the common POS transaction fee?

Point of sale transaction fees may vary based on the type of transaction and the POS system used. Generally, POS fees are charged per transaction. 

4. What are the common errors that occur on POS?

Common errors that can occur on a POS system include pricing mistakes, inventory discrepancies, transactional errors, and technical glitches.

5. How long does a POS transaction take?

The duration of a POS transaction can vary depending on factors such as the payment method used, the efficiency of the POS system, and the complexity of the transaction. However, in most cases, a POS transaction takes only a few seconds to complete.

6. What is a POS purchase?

A POS purchase, or Point of Sale purchase, refers to a transaction where a customer buys goods or services from a business at the physical location where payment is made, typically at a cash register or checkout counter.

7. What is a POS payment?

POS payment refers to a transaction where a customer makes a payment for goods or services at the point of sale, typically using a credit or debit card. This is commonly used in retail stores, restaurants, and other businesses where customers physically visit the establishment to make a purchase.

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