Your Vendors May Be a Cyber Risk: How to Manage Third-Party Exposure

Imagine a scenario where you've taken prudent cybersecurity steps. You trained your staff on phishing. You turned on multi-factor authentication. You patch your systems. Then one morning, your sensitive customer data is exposed online but the breach didn't come from your system – it came from one of your software vendors, that had been compromised months earlier...

Scenarios like this can and do occur.  Verizon's 2025 Data Breach Investigations Report found that third-party involvement in breaches doubled to 30%, highlighting the risks associated with supply chain and partner ecosystems. This suggests that third-party involvement is becoming a more significant factor in many breach events. And small businesses, who often rely on a list of third-party vendors to help run day-to-day operations, may be exposed to added cyber risk.

Even if you have strong internal security controls in place, third-party vendors may introduce additional cyber risk. In this article, we share some practical ways small businesses can better manage vendor-related third-party cyber risk exposures.

What Counts as a "Third Party”

When business owners hear "third-party cyber risk," they might think of big-name software providers. But the list includes more than that. Many outside vendors or service providers that access your data, your network, or your systems may be considered third parties which can introduce varying levels of operational or cybersecurity risk.

There are examples of third-party vendors that many SMBs might work with:

• Cloud storage and file-sharing services
• Accounting and payroll providers
• Customer relationship management (CRM) tools
• Email marketing and communications platforms
• IT contractors and managed service providers
• Website hosting and developers
• Point-of-sale systems
• Payment processors
• Industry-specific software (legal practice management, medical records, etc.)
• Marketing agencies with access to your accounts

Many of these vendors may have access to certain systems, data or operational processes.  Depending on how they are used, this can include your customer list, your financials, your employee data, your network. And each vendor relationship may present its own operational and cybersecurity risk profile.

If one of these vendors experiences a breach, organizations that rely on that vendor may also face downstream risk.

Why Third-Party Breaches Can Have Significant Impact

Vendor-related incidents have become a growing concern and can be difficult to detect. Some studies suggest that these incidents may take longer to detect and can involve significant costs.  IBM’s 2025 Cost of a Data Breach Report found that operational disruption represented 31% of incidents studied, with 60% experiencing direct data compromise due to AI supply chain and model attacks.

Why so long? In some cases, legitimate vendor activity may resemble normal system behavior, which can delay detection and response efforts.  If a bad actor compromises a vendor and uses that vendor’s authorized access to enter your environment, traditional alerts may not trigger immediately.  As a result, the issue may go undetected until after harm has occurred.

Vendor incidents can also create reputational considerations.  Customers may associate the disruption with your business, even when a third party was involved.  Depending on the circumstances, organizations may also need to manage customer communications or notification obligations.

A vendor's security failure can become your security failure the moment your data is exposed.

Recent Examples of High-Profile Vendor Incidents

Recent years have included several well-publicized vendor incidents that affected customers across multiple industries.  In some cases, organizations experienced operational delays, service interruptions, or supply-chain challenges.

The takeaway for small businesses is practical: when a critical vendor experiences downtime, dependent businesses may also face disruptions and may have fewer resources to respond quickly.

A Practical Framework for Vendor Third-Party Cyber Risk Management

You don't need a dedicated procurement team or expensive governance software to improve vendor oversight. to do this well.

 Here's a practical approach that many small businesses can begin implementing:

1. Build a Vendor Inventory

Effective vendor oversight starts with visibility.  Start with a simple spreadsheet that lists key vendors and services, particularly those with system, data or financial access:

• Stores business or customer data on your behalf
• Has access to your systems or network
• Processes payments or financial transactions
• Has login credentials to any of your business accounts

For each one, note what data they touch, who at your company owns the relationship, and how critical they are to your operations. This may sound tedious, but many businesses find the list longer than expected. That visibility can be a meaningful step forward.

2. Tier Your Vendors by Risk

Not every vendor deserves the same level of review. A vendor that holds your client database generally presents greater risk than the one that supplies routine office services. A simple three-tier system can be a practical starting point for many SMBs:

High risk: Vendors with access to sensitive customer data, financial systems, or core network resources

Medium risk: Vendors with limited access to internal data or non-critical systems

Low risk: Vendors with little or no access to sensitive data or core systems

Prioritize review time on vendors that present a higher risk.  The lower risk vendors may be reviewed by a simpler annual process.

3. Ask Key Questions Before You Sign

Before onboarding any new higher-risk vendor, consider asking them a focused set of security questions. You don't necessarily need a lengthy questionnaire; a concise, targeted review may be more practical. Some key questions may include:

• Do you maintain independent security attestations, such as SOC 2 Type II or ISO 27001, if applicable?
• How do you encrypt data in transit and at rest?
• Do you require multi-factor authentication for employees?
• What's your incident response and breach notification process?
• Have you experienced any recent (in the last two years) material security incidents, and if so, how were they addressed?  

A prepared vendor will often be able to address these questions clearly.  Difficulty addressing basic security questions may be a useful data point.

Pro Tip: Where appropriate, consider requesting recent audit reports, security attestations or summary of testing results.  Many vendors share such materials under an NDA, subject to confidentiality and internal policies.  

4. Get Breach Notification in Writing

This can be one of the more valuable elements to address in a vendor contract.  Consider specifying when the vendor must notify you following qualifying security incidents, what information must be shared and responsibility during response efforts. Without clear contract language, notification timing and expectations may be less certain.

Also include language regarding contractual remedies or termination rights that may apply if security obligations are not met.

5. Recheck Annually

Vendor oversight is typically an ongoing process rather than a one-time review. People leave, companies get acquired, certifications lapse, and new vulnerabilities emerge. At appropriate intervals (often annually for higher risk vendors), revisit your key relationships and ask:

• Are they still meeting the commitments as originally described?
• Have there been any material incidents since the last review?
• Are relevant certifications still current?
• Has their level of access or data handling changed?

Even a brief annual review can help identify changes or follow-up items.

What Can You Do If a Vendor Gets Breached

Even with strong controls in place, vendor-related incidents can still happen. When they do, a prompt and coordinated response can be important.  Consider the following immediate steps:

1. Gather the facts. Determine what data or systems were affected, when the incident occurred and whether the vendor has contained it?
    
2. Review access. If a vendor has active connections to your systems, consider restricting or suspending access until the scope is better understood.
    
3. Rotate credentials. Update relevant passwords, API keys, tokens or other shared credentials, as appropriate.
    
4. Notify your insurance carrier. If you maintain cyber insurance, review any notice requirements and consider notifying your carrier promptly.
    
5. Consult with legal counsel. Depending on the circumstances, you may have notification or other regulatory obligations.
    
6. Document everything. Keep a written timeline of material facts, actions taken and communications.

Situations like this often highlight the value of having trusted managed IT and security resources available.

Bottom Line

Vendor relationships can meaningfully affect your overall security posture. Recent studies have reported third-party involvement in a significant share of breach incidents, making vendor risk an important business consideration. The good news is that improving vendor oversight does not always require a major investment. A practical vendor inventory, focused due diligence, clear contractual expectations and periodic reviews can help strengthen your third-party risk management approach.

Need Help Assessing Your Vendor Risk?

Acrisure Cyber Services offers cybersecurity and IT risk assessments for small businesses. We can help you evaluate your vendor landscape, identify areas of potential exposure and consider practical steps to help strengthen your approach. 

Reach out to [email protected] or visit acrisure.com/cyber to get started.

_{Note: This article is for informational purposes only. Vendor risk, cybersecurity exposures, contractual obligations and incident response requirements vary by organization.  This article provides general considerations only and may not address all risks relevant to your business.  Organizations should evaluate their specific circumstances and consult appropriate professional advisers regarding specific circumstances.}