Recent data from our 2025 IT Trends Report found that over 60% of SMBs experienced some form of third-party or supply chain-related cyber risk last year. With cybercriminals increasingly targeting small and midsize businesses through indirect access points, ignoring vendor security is no longer an option.
At ISOutsource, we believe your IT should do more than support operations—it should drive growth, resilience, and confidence. Here’s how SMBs can take proactive steps to assess, manage, and improve vendor security in a practical and scalable way.
Why Vendor Security Matters for SMBs
While large corporations may dominate headlines after a breach, SMBs are just as vulnerable—often more so due to resource constraints and limited internal security teams. Supply chain attacks have become a preferred tactic for threat actors because they exploit the trust organizations place in their vendors.
Consider the SolarWinds breach, which gave attackers access to thousands of companies through a widely used software provider. Or the Log4j vulnerability (Log4jShel), which spread rapidly across multiple supply chains due to outdated components buried in third-party applications.
For SMBs, the consequences can be devastating: data loss, compliance violations, service disruptions, and a loss of customer trust. Financially, IBM’s 2023 report pegged the average cost of a data breach for organizations with fewer than 500 employees at $3.31 million—up 13% year-over-year.
In short: failing to manage vendor risk is not just a security oversight—it’s a business risk.
Key Questions to Ask About Your Vendors’ Security Practices
Vetting a vendor’s security posture starts with asking the right questions. These aren’t just checkboxes—they’re gateways to understanding how seriously a vendor takes its role in protecting your data and systems.
- Do they hold recognized security certifications?
Look for standards like SOC 2, ISO 27001, or HITRUST, which indicate a mature approach to data protection and operational controls. A vendor without any formal security certification may not be meeting baseline security expectations. - Is multi-factor authentication (MFA) required across their systems?
MFA is one of the simplest and most effective ways to prevent unauthorized access. If a vendor doesn’t enforce MFA for admin or user access, it’s a major red flag. - How is your data encrypted and stored?
Ask about both data-at-rest and data-in-transit encryption. Reputable vendors should use strong encryption protocols (e.g., AES-256) and store data in secure, access-controlled environments. - What’s their incident response plan?
A clear, documented plan should include how they detect, respond to, and recover from security incidents and notify you if your data is affected. - Do they undergo regular security audits or third-party assessments?
Ongoing assessments (and willingness to share results) demonstrate a commitment to continuous improvement and transparency.
These questions set the foundation for responsible vendor selection and are an essential first step in protecting your business.
Conducting a Vendor Risk Assessment
Before onboarding any vendor—especially those that will handle sensitive data or integrate with internal systems—conduct a formal risk assessment. This process doesn’t have to be overwhelming. It simply needs to be structured, repeatable, and aligned with your business goals.
Step 1: Evaluate Security Practices
Use a standardized security questionnaire or industry frameworks like NIST SP 800-161r1 to guide your evaluation. Focus on access controls, system patching, monitoring practices, and data governance.
Step 2: Review Contracts and SLAs
Ensure that contracts include clear terms around data protection, breach notification timelines, security obligations, and liability. Security expectations should be contractually binding—not just assumed.
Step 3: Request a Software Bill of Materials (SBOM)
If you’re purchasing software, request an SBOM. This document outlines all components (including open-source libraries) within the software. It helps identify hidden vulnerabilities and ensures compliance with patching requirements.
Step 4: Score the Risk
Assign a risk level to each vendor based on their access to your systems and the sensitivity of the data they’ll handle. Use this score to determine how often you review or audit their practices.
Remember, the goal isn’t just to reduce risk—it’s to make smarter, more informed decisions.
Red Flags That Indicate Poor Vendor Security
Some vendor shortcomings aren’t always obvious—until they become costly. Here are some key indicators that a vendor may not have the security maturity your business needs:
- Lack of security certifications or assessments
If a vendor hasn’t invested in formal certifications or can’t provide evidence of third-party audits, it’s a sign that security may be an afterthought. - Unwillingness to share security documentation
Transparency is non-negotiable. Vendors that dodge questions about incident response plans or compliance history raise immediate concerns. - Reliance on outdated or unpatched systems
Unpatched software is a leading cause of breaches. If a vendor’s tools or platforms aren’t regularly updated, your exposure increases. - History of breaches or poor incident response
Everyone makes mistakes—but how a vendor responds matters. If they’ve had past security incidents without clear corrective actions, it’s a warning sign.
Trust is earned through consistency, visibility, and accountability. Don’t settle for vendors who lack all three.
Strengthening Vendor Relationships for Better Security
A strong vendor relationship is built on more than good service—it’s built on shared accountability. Here’s how to create a partnership that puts security at the forefront:
- Build security clauses into every contract.
Define clear responsibilities, breach reporting timelines, and security expectations upfront. This sets the tone and ensures mutual accountability. - Establish an ongoing vendor review process.
Conduct periodic assessments—quarterly or annually—to validate compliance and address new risks. Use scorecards to track performance and risk levels over time. - Collaborate on improvements.
Security is a journey. Work with your vendors to identify gaps and offer guidance or resources when possible. In many cases, vendors appreciate this partnership approach. - Control vendor access with precision.
Implement role-based access controls (RBAC) and restrict vendor access to only what’s necessary. Use tools like privileged access management (PAM) and ensure all vendor access is logged and monitored.
Securing your vendor relationships protects your business—but it also builds stronger, more resilient partnerships that can grow with you.
Leveraging an MSP for Vendor Security Management
Managing all of this in-house can be challenging, especially for small and midsize businesses without dedicated security staff. That’s where a Managed Service Provider (MSP) like ISOutsource becomes your most valuable ally.
- Expert-Led Vendor Assessments
We help you evaluate new and existing vendors using proven frameworks and custom scorecards, ensuring risk is clearly understood and managed. - Ongoing Monitoring & Compliance Support
With regular reviews and real-time alerts, our team ensures vendors meet your compliance needs—from HIPAA to SOC 2—without the administrative burden on your side. - Incident Response Coordination
Should a vendor-related incident occur, we act fast to contain the breach, investigate the root cause, and ensure coordinated communication with all stakeholders. - A Strategic, Scalable Partnership
As your business evolves, so do your vendor needs. Our vCIO and vCISO services offer strategic guidance on vendor selection, integration, and ongoing governance.
As Charlie Lindsay, ISOutsource’s Security Engineering Manager puts it:
“Security is about layers, and vendor management is one of the most important. Without visibility into vendor risk, you’re leaving the door open—often without realizing it.”
Next Steps for Your Business
Supply chain risk isn’t hypothetical. It’s happening now—and SMBs are a prime target. But with the right approach, tools, and partners, vendor security can become a strength, not a vulnerability.
Here’s what you can do today:
- Review your top 5 vendors and ask the five security questions outlined above.
- Work with your MSP or IT lead to prioritize vendors by risk level.
Need help getting started?
ISOutsource has you covered. We’ll help you assess your vendor landscape and build a plan to secure it—so you can focus on what matters most: growing your business.