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How to Select the Best POS System for Your Retail Business – Part 1: Accepting and Processing Payments
Posted by Sylvia Lagerquist, CPA
Small retailers have many priorities to address as they seek to thrive in today’s hyper-competitive marketplace – especially as the bricks-and-mortar retail sector consolidates and online retailing continues its rapid growth. Priorities typically include selecting the retail location; outfitting the store with fixtures and displays; and selecting products to offer.
One of the less glamorous priorities — but one that is increasingly essential to your overall success — is the selection of your Point-of-Sale (POS) system. In a previous era, small retailers simply chose the POS system (or cash register) that their merchant bank would recommend, or in many cases, they didn’t have any choices at all.
Today, the range of options can seem overwhelming and the differences in POS products are dramatic. As retail customers become accustomed to having more ways to find, select and pay for your products, it’s critical that your retail POS provide the support you need to meet and exceed those expectations. In fact, POS systems today can be very sophisticated and offer a wide range of capabilities, which is why we’ll discuss them in depth across two articles. In this article, we’ll focus on the payment acceptance and processing side of POS, and in a second article, we’ll dig into the inventory, employee, purchasing and management components of POS.
Here are four factors relating to payment acceptance and processing that should go into the POS system selection process for your retail business:
1. Know Your Requirements
Every good business technology selection process should begin with a clear set of baseline requirements. For example, will your business be selling products online as well as in the store? How complex will your inventory management needs be? What software do you intend to use to track products and make wholesale purchasing decisions? How many SKUs will you carry? How robust or complex will your return and exchange procedures be? Each one of these requirements will benefit from detailed evaluation, and each one will impact your ultimate decision.
2. Evaluate the Providers
In addition to considering your core technical and management requirements, it’s also important to examine the providers themselves. In some cases, the POS system can be used with any number of merchant banks or processing services, but in other cases a system may be tied to one specific vendor.
One of the most important things to consider is whether to partner with one of the traditional merchant banks (also known as ‘processors’), or whether to use one of the emerging third-party companies (referred to as ‘aggregators’) who have taken the market by storm. This latter group includes Square, PayPal, Intuit Payments and Stripe, among others. The differences between these two business models is much larger than most businesses realize, and has a huge impact on a range of factors, not the least of which is the cost of your processing services as well as your merchant liability.
Note: For more information on this aspect of the decision process, see our article titled What You Should Know About Accepting Credit Cards at Your Small Business.
3. Understand Your Usage Needs
In the early days of a new retail business, it’s easy to forget just how quickly your POS needs might evolve. Today you might just be thinking of accepting payments at one location, and always in that location. But tomorrow, your needs might change. Perhaps you’ll open a second location. Maybe you’ll want to sell products at consumer expos and other field events. Perhaps you’ll start selling online as well. And remember that mobile payments using handheld terminals — even inside the store — are rapidly growing as well.
You also need to think about the ways in which customers will pay you. For example, will you accept checks? Will you accept just Visa and MasterCard, or will you also process American Express and Discover cards? How will you manage cash transactions, and how critical will cash management be to your retail requirements? Don’t forget that credit cards may use a magnetic stripe, or they may now be chip-enabled. And then there are mobile payment options (such as Apple Pay) and online payment accounts such as PayPal.
4. Review Systems and Security
In addition to considering options against your requirements, provider options and usage needs, you need to take a hard look at how the systems behind each POS option are setup, and what security they offer. From a systems perspective, make sure to walk through typical transaction scenarios with the POS in a demo mode and review how well they will support your retail staff. The quality of the user interface can make or break your employees’ ability to reliably work with the POS and keep errors to a minimum.
In addition, make sure to understand the security implications of each system you evaluate. One of the largest cyberattack targets today is the retail industry, and POS systems are widely regarded as the most vulnerable soft spot for hackers. While large retailers can afford the costs of compliance and/or recovery, small ones probably can’t, so for your business, it’s all about prevention.
Take the time to ask about software security, malware protection and data encryption. How easy or hard is it to slip a USB drive into an open slot on the device and steal data? What level of PCI compliance is the vendor supporting with their current technology? If the POS will be internet-connected or tied to your store network, how can you secure your network to ensure that data is behind the firewall? These are just some of the systems and security questions you need to explore.
These four considerations — requirements, providers, usage needs and systems/security — are by no means an exhaustive list of considerations for POS system selection. However, they will give you a solid framework from which to work as you take the time to properly evaluate and ultimately select the very best POS solution or your retail business…for today’s needs and tomorrow’s opportunities.
Image Credit: Poindus (Flickr @ Creative Commons)
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