The Hidden Costs of “Free” POS

There is no such thing as “free” POS

We all know there is no such thing as a free lunch, so how do so called “free” POS companies get away with those claims? Any business owner knows that value matters more than price, that you get what you pay for, and that anyone offering us something for free is making the money back somewhere.

So how do “free” POS companies make money? And how will choosing a “free” POS option affect your business long term?

How you pay for “free” POS

Generally, “free” POS offers are really POS financing offers. There is little or no up-front cost for the system but you will pay for it (with interest) over time. Sometimes this is in the form of a monthly fee but often, the payment for the POS is bundled in to your credit card processing fees. The first question you should ask if someone is offering you a “free” POS system is whether you are locked into processing credit card transactions with them and for how long. Chances are that you will be, and the fees may be much higher than other credit card options (because the cost of the POS is included).

Shop around for merchant services

If a company offers you a “free” POS system for using their merchant services, shop around a bit. Compare the transaction fees they are offering to those of competitors and then do the math. How long are you locked in with them? What’s the cost difference over time between using their service versus competitors?

Shop around for financing

What “free” POS providers are really offering you is financing. Financing the POS investment is a great option for new businesses that have already made a lot of large cash outlays.  But it’s important to understand what you’re getting. Once you realize that this system isn’t free but financed, you can make a better decision and choose the best, most cost effective financing option. Interest rates are low right now, so a leasing company, bank, or competitive POS company will likely have low cost financing options to offer.

Once you know the cost of the “free” POS system, it may turn out that if you find lower interest financing and a more cost effective credit card processor, a more robust POS system- that would offer you more reliability, better functionality, and come with better training and support- is around the same price as the supposedly “free” option. Then it’s time to consider the implicit costs of choosing the “free” option.

The more subtle costs of “free” POS: How will this choice affects your business?

There is also a more subtle cost associated with choosing a “free” POS option. A POS system is a mission critical business management tool. You need a system that is intuitive, flexible, and reliable. A system that can grow as your business does. More importantly, the company you choose to work with needs to be there for you after the sale to provide training to new management staff, to help solve new challenges as they arise (like the need to provide a more modern loyalty program, or introduce Online Ordering) and to offer preventative maintenance to protect your POS investment. If you choose to work with a company whose core business is not restaurant consulting and point of sale, but is instead, credit card processing, a company that uses POS as a marketing ploy to sell credit card processing at higher rates, you will pay more than the explicit costs of the system. The lost revenue and increased costs because of missing features, poor functionality, and non-expert service, is the real cost of choosing a “free” system.

Other hidden fees

In addition to the cost of the POS itself, which is bundled in to your credit card payments, there may be other hidden fees associated with a “free” POS system. When evaluating a “free” POS offer you should ask:

Does the processing agreement auto renew after the term of your agreement, forcing you to manually opt out or be stuck for another five years?

Are your processing fees contractually fixed or can they hike up the rates any time they want?

Are there exit fees or penalties if you want to switch processors?

What hardware is included and what hardware will you have to pay for?

What quality is the hardware? Read some reviews.

Who will pay to fix the hardware if it breaks?

Who owns the equipment at the end of your agreement?

How are service fees charged? Per visit? Per terminal? Can you get discounted service through a maintenance contract?

The bottom line

The bottom line is to look at the long term costs and long term risks when evaluating a “free” POS offer.  The low initial cost outlay may seem attractive but over a five year period you may find that the explicit and implicit costs are much higher than other options.

Author: Remigijus Pavydis