The Connection Between Custom POS Solutions and Business Interruption Insurance

Retail and hospitality businesses find point of sale (POS) systems indispensable to process sales, manage inventory, track revenue, as well as get the customers’ data. However, if these systems malfunction due to power outages, internet outages, or cyberattacks, they can halt operations and incur significant losses.

Business interruption insurance comes in to compensate for the income lost when operations are suspended due to POS system failures.

Therefore, it is especially important for companies investing in customized POS solutions designed to meet their unique needs to have adequate business interruption insurance. In this article, we will go into detail about how bespoke POS systems can be related to business interruption insurance.

It will discuss risks associated with custom POS implementations, the cost of POS-related business interruptions, and why this type of insurance is becoming more and more important.

Understanding Custom POS Solutions

To understand the connection between customized POS systems and business interruption insurance, consider first reviewing how to make a POS system to better appreciate what these tailored solutions include.

Custom POS systems are tailored to meet a business’s unique requirements, unlike off-the-shelf, one-size-fits-all approaches. Key benefits include:

• Integrating perfectly with existing accounting, inventory, and e-commerce platforms
• Streamlining specific workflows and business processes
• Providing features to support business growth and expansion
• Meeting industry-specific and compliance needs
• Facilitating omnichannel retail

The worldwide POS market is growing and will be worth approximately $27.71 billion by 2030, as per Grand View Research. Many retail, restaurant, hospitality, and entertainment venues with special needs are best served with customized solutions.

However, while the advantages are plentiful, relying on complex, customized POS platforms also comes with distinct risks.

Risks of Custom POS Implementations

Compared to out-of-the-box POS solutions, which are tried and tested, bespoke systems face greater implementation and operational risks:

Integration Issues

Custom POS solutions promise to loosely integrate with an existing business platform. However, API and database integration can not always fail. Disruptions that suspend sales and revenue can result from errors.

Bugs and Errors

Bugs and errors are possible with any POS system but are more likely with custom-coded ones that have not been thoroughly tested. Until the bugs are fixed, POS systems can render the system completely unusable, causing cash flow issues.

Feature Creep

It’s tempting when ordering up a custom POS system to add as many features as possible. However, overscoping tends to slow down, bugify, and generally fail implementations. It is best to stick to must-have features.

Short-Staffed POS Vendors

Given the booming demand for custom POS solutions, vendors sometimes lack sufficient developers and tech support reps. Short-staffed vendors can really hamper implementations.

Cybersecurity Risks

POS systems are attractive targets for hackers because they integrate with many business systems and store valuable customer payment data. Custom systems can present unique vulnerabilities that hackers exploit.

With risks like these, it’s no wonder a startling 60% of IT projects end in failure, according to Forbes. Custom POS implementations are especially precarious. When they go downhill, the business interruptions can be catastrophic.

The Cost of POS-Related Business Interruptions

When POS systems go offline or underperform, retail and hospitality businesses get hit hard in the pocketbook due to:

Lost Sales

Sales can come to a complete halt due to malfunctioning POS equipment. Without the ability to accept payments and process orders, revenue immediately ceases. This can amount to thousands of dollars in lost sales per hour.

Wasted Perishable Goods

For restaurants, food shops, grocers, and theaters, being unable to process sales often means spoiled perishable ingredients and food items. The costs of wasted goods can pile up quickly.

Manual Workarounds

Some businesses implement clumsy manual workarounds when systems fail, like taking orders with pen and paper. However, these band-aid solutions also waste substantial worker hours.

Customer Walkouts

POS malfunctions and crashes inevitably lead to long lines and frustrated, impatient customers. Many will simply walk out, never to return. The revenue losses from customer walkouts are incalculable.

Reputation Damage

POS problems that constantly leave customers unhappy can seriously damage a retailer’s brand reputation. This drives down sales over the long term.

Given these dire financial risks, it’s shocking that Vanson Bourne reports 23% of SMB retailers lack business interruption insurance to protect them from POS disruptions. For those investing in expensive, customized POS implementations exposed to greater volatility, adequate coverage is absolutely vital.

The Case for Business Interruption Insurance

Business interruption or business overhead expense coverage is insurance that pays for income lost while operations are suspended by events such as natural disasters and acts of nature, accidents, and system failures.

It can also include operating expenses such as employee payroll, taxes, loan payments, rent, etc., during shutdowns.

Standard business insurance policies do not cover lost income from suspensions. That’s why business interruption insurance is so essential, especially for retailers and restaurants.

This table provides an overview of what perils typical business interruption insurance policies protect against:

Covered Business Interruption Perils

• Fire
• Natural disasters
• Water damage
• Equipment breakdowns
• Utility disruptions
• Cyber attacks
• Civil unrest
• Supply chain disruptions

POS system failures and data breaches fall under the “equipment breakdowns” and “cyber attacks” covered perils. Custom POS solutions that undergo shaky implementations and experience recurring bugs that are especially prone to triggering business interruption insurance claims.

Without this insurance, one small POS mishap can lead to a huge financial hit from lost sales and wasted product. It’s no wonder the global market for business interruption insurance is expected to reach a value of $93.5 billion by 2030, according to market research firm Fortune Business Insights.

Key Factors When Choosing Business Interruption Insurance

To make sure your company has adequate protection, it’s critical to understand a few key factors about business interruption insurance coverage:

• Coverage Timeframe: Typical policies cover income losses for 6 to 12 months after an incident. Carefully consider how long it may take your business to fully recover from a major POS failure when choosing a coverage duration.
• Waiting Periods: Most policies have a 1-3 day waiting period before coverage kicks in after an incident. Make sure your business has ample savings to weather this initial period.
• Policy Limits: These caps define the maximum payouts you can claim for income losses and expenses. Limits should be high enough to fully cover your worst-case scenarios.
• Business Size: Bigger companies with higher revenues need bigger coverage limits. Make sure your policy aligns with your annual sales.
• Industry Risks: Businesses in higher-risk industries like retail and hospitality require higher coverage due to their vulnerability to interruptions.

By tailoring policies using these criteria, businesses can make sure their coverage adequately protects against financially devastating POS disruptions.

Strategies for Mitigating POS Business Interruption Risks

Beyond getting comprehensive business interruption insurance, companies can also adopt strategies to minimize risks from the start of their custom POS initiatives:

Find the Right POS Partner

Vet POS vendors thoroughly based on industry experience, technical expertise, project management rigor, ongoing support capabilities, and client references. Don’t just go with the cheapest bid.

Start Small, then Scale

When rolling out a new custom POS, begin with a limited pilot deployment. Thoroughly test for bugs with a small number of stores or locations before expanding.

Prioritize Must-Have Features

Avoid overstuffing your POS with superfluous features. Focus investment on core features vital for daily operations to avoid overcomplication.

Maintain Detailed Requirements

Leveraging a requirements management platform, meticulously log all POS system specifications you provide to vendors, including customizations, integrations, and capabilities. Treat this as the blueprint vendors must follow.

Build In Disaster Recovery

Make sure POS systems have adequate redundancy, automatic failovers, and backups. This enables rapid recovery from outages or disasters.

Put Cybersecurity First

It should be a top priority to ensure POS data security. Encrypt, enforce access controls, use a firewall, deploy antivirus, and segment the network.

Even when they have chosen to use complex, customized POS solutions, retailers can mitigate the risks of such deployments by being selective with POS vendors, deliberate about deployments, disciplined about scope, and diligent about resilience.

Conclusion – Custom POS Systems Demand Tailored Insurance

Strategically smart for today’s retailers and restaurants is the investment in customized POS solutions dedicated to their workflow and business model. Although bespoke systems also have increased risk in terms of implementation issues going wrong and performance issues causing costly business interruptions.

Businesses that depend on dependable POS infrastructure face significant risks such as lost sales, wasted goods, and reputational damage, necessitating the need for business interruption insurance.

Understanding factors such as payout limits, coverage duration, and the duration of the waiting periods is important to ensure that the business is protected from even the worst disruption scenarios.

However, it should not be the only element of a multi-layered risk mitigation plan. It is also following best practices on vendor selection, project scoping, disaster recovery, and cybersecurity.