7 Ways to Strengthen Third-Party Vendor Risk Management in 2025

Businesses often lack the necessary resources or expertise in-house to handle everything, so they rely on trusted vendors to fill the gaps. From cloud storage and payment processing to HR, outsourcing is the norm. And for good reason, it helps companies focus on what they do best. 

But sometimes this convenience comes with a cost. When a vendor is compromised, you are too.

In 2023, a zero-day vulnerability in MOVEit Transfer led to a global breach affecting over 2,500 organisations and 66 million individuals. Likewise, the Okta supply chain attack compromised sensitive credentials through a breach in its support case system, impacting multiple downstream clients.

These incidents reveal a troubling truth: third-party and supply chain attacks are becoming increasingly frequent, sophisticated, and damaging.

In this article, we’ll discuss these risks and show you how to build a strong vendor risk compliance program to keep your business secure.

What Is Third-Party Vendor Risk?

Third-party vendor risk refers to the potential issues that arise from relying on external companies, such as partners, suppliers, or service providers. These vendors often have access to important aspects of your business, such as sensitive data or key systems, which means they become integral to your overall security picture.

Today, businesses outsource a lot of work, including things like:

• Storing data
  
• Running online stores
  
• Handling billing and payments
  
• Customer service and support
  
• Payroll and HR tasks
  
• Making parts for products

Most companies depend on these vendors to keep things running smoothly. However, with that reliance comes real risks, such as data leaks, rule violations, damage to your reputation, or even business disruptions. 

For enterprises, especially large organisations managing thousands of vendors, assessing and mitigating these risks is necessary. It’s because too many vendors can represent single points of failure, particularly during cybersecurity incidents or IT outages, making robust risk management practices essential.

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Why Vendor Risk Is a Bigger Threat in 2025

In 2025, third-party vendor risk has evolved into one of the most critical cybersecurity concerns for organisations. As companies expand their digital operations, the number of external vendors they rely on has surged, each one introducing a potential entry point for attackers.

The move to cloud-based services and API integrations has made things more complicated. Vendors often handle sensitive data or connect directly to internal systems, providing cybercriminals with more opportunities to exploit vulnerabilities in the supply chain.

The numbers tell the story: According to the UK’s National Cyber Security Centre (NCSC), over 60% of cyberattacks this year have involved supply chain vulnerabilities, a sharp 48% jump since 2023. 

Meanwhile, ENISA reports that nearly 90% of organisations have at least one high-risk third-party relationship that could lead to a breach.

Furthermore, regulations have become stricter. Businesses are now held directly responsible for the security failures of their vendors. That means something as simple as a misconfigured server or a delayed security patch on a vendor’s side could trigger hefty fines and damage your reputation.

In short, vendor ecosystems are becoming increasingly complex, and so are the expectations surrounding their security. Today, managing third-party risk is no longer just a checkbox; it has become a strategic priority for every business.

5 Common Security Gaps in Vendor Risk Management

Despite the growing emphasis on third-party risk, many organisations still face significant vulnerabilities due to overlooked aspects in their vendor management processes.

1. Incomplete and Outdated Vendor Inventories

For many organisations, building an accurate vendor inventory sounds basic, but in practice, it’s one of the most persistent gaps in third-party risk management. According to Hyperproof’s 2021 IT Compliance Benchmark Survey, 76% of CISOs report that regulatory fragmentation is significant. That challenge has only grown as businesses expand their reliance on SaaS, cloud services, and specialised external partners.

The problem isn’t just about volume. In most cases, vendor information is scattered across departments with no central system tracking who the vendors are, what they do, what data they can access, or who internally owns the relationship.

Without this clarity, security teams are left with limited visibility into their third-party exposure, and risk assessments become reactive rather than strategic.

2. Exposure Due to Unpatched and Vulnerable Systems

Unpatched systems remain among the most common and preventable security gaps in vendor ecosystems. Despite growing awareness, many vendors operate with outdated software, missed updates, or legacy platforms that haven’t received critical patches. This introduces vulnerabilities that threat actors routinely exploit. 

Research from IBM’s 2023 Cost of a Data Breach report confirms that software vulnerabilities in third-party systems remain a top attack vector. Incidents like the SolarWinds compromise demonstrate how attackers target weaknesses in vendor infrastructure to gain indirect access to enterprise environments.

The problem often stems from a lack of transparency. Most organisations lack insight into their vendors’ patch management policies and vulnerability monitoring processes.

Leaving this unchecked turns known vulnerabilities into open doors, ones that attackers are trained to find quickly.

3. Non-Compliance with Data Protection Regulations

Working with third-party vendors often means handing over sensitive data but that trust doesn’t always translate to compliance. Many vendors fall short of meeting global data protection standards like GDPR, CCPA, or HIPAA, and the consequences of that can fall squarely on your shoulders.

A survey found that 60% of organisations weren’t confident that their vendors were fully compliant with HIPAA. That uncertainty is a red flag, especially as regulations become stricter and more complex.

One effective way to reduce regulatory risk is outsourcing to partners who are already compliant with industry regulations, like Invensis. As a certified provider, Invensis aligns with global standards including ISO 27001, ISO 9001, and HIPAA. This ensures strong data protection, security controls, and audit-ready processes.

Outsourcing to certified providers like Invensis not only reduces regulatory risk but also brings the benefit of audit-ready processes and continuous security monitoring, further strengthening your overall risk posture.

In short, robust vendor communication combined with partnering with compliant service providers transforms vendor risk management from a reactive task into a proactive and strategic advantage.

4. Risks from Compromised Vendor User Credentials

According to research, compromised or weak credentials are involved in nearly 81% of breaches. Vendor accounts often provide direct access to critical systems but don’t always receive the same security scrutiny as internal users. Shared passwords, lack of multi-factor authentication, and broad access privileges create significant vulnerabilities.

Human error is a frequent cause of cyberattacks, including phishing attacks, password reuse, or careless handling of credentials among vendor staff, which opens doors for attackers. Coupled with limited monitoring of vendor access, this allows breaches to go undetected until significant damage has occurred.

Addressing this risk requires more than just technical controls. Building a security-first culture, one that emphasises strong authentication, routine access reviews, and active collaboration with vendors, helps foster accountability and vigilance, reducing the likelihood that compromised credentials will lead to a full-scale breach.

5. Lack of Transparency and Communication from Vendors

Ongoing communication with vendors is essential not just during incidents, but whenever changes occur that could impact your security. This includes updates such as system or software upgrades, changes in data handling, audit results, compliance status, infrastructure modifications, or personnel changes with privileged access.

When vendors fail to share such information promptly, organisations are left reacting to issues after the fact, often with incomplete visibility. Even a minor uncommunicated change can introduce new vulnerabilities or complicate compliance efforts.

The solution lies in building strong partnerships with defined communication protocols, regular risk updates, and shared accountability. Transparency isn’t optional; it’s a core requirement for effective, modern vendor risk management.

Real-World Case Studies of Major Cybersecurity Breaches

Enterprises that fail to maintain strong third-party security compliance, or whose vendors do not adhere to required standards, face severe regulatory penalties.  Under regulations like the GDPR, fines can reach up to €20 million or 4% of a company's global annual revenue. 

Beyond financial penalties, non-compliance often results in significant operational disruption and lasting reputational damage. Let’s discuss two prominent breaches that exemplify these risks:

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How to Build a Third-Party Vendor Risk Compliance Management Program

Once common gaps in vendor risk have been addressed, organisations must adopt a structured and proactive vendor risk compliance strategy. Here’s a step-by-step approach to building a robust program:

1. Establish a Robust Vendor Risk Management Policy

Creating a clear and formal Vendor Risk Management (VRM) policy is essential for making third-party risk a core part of your organisation's security approach. This policy should clearly define the types of vendor risks you’re managing, whether operational, compliance-related, cybersecurity-focused, or reputational, and outline who is responsible for what across legal, IT, procurement, and compliance teams.

It needs to establish a practical, evidence-based process for assessing vendors, including how to categorise risks, continuously monitor vendors, and handle any issues that arise.

Most importantly, this policy shouldn’t be set in stone; it must be regularly reviewed and updated to keep up with changing regulations, new threats, and shifts in your vendor relationships.

Doing this keeps your organisation ready for audits, ensures everyone is on the same page, and helps manage vendor risks consistently and effectively over time.

2. Create a Centralised Vendor Inventory with Technical and Contractual Visibility

The next step in building a robust vendor risk compliance program is establishing a centralised, living inventory of all third-party relationships. This inventory should not only include the obvious vendors but also encompass contractors, API integrations, cloud service providers, and any indirect partnerships that may have access to organisational data or infrastructure. 

It’s essential to document more than just the vendor’s name and contract details. Organisations should capture the specific services offered, the types of data processed, access levels granted (including VPNs, APIs, or privileged credentials), integration points with internal systems, and data residency or storage locations. 

This granular level of detail allows risk managers to visualise the full scope of external exposure and prepare for potential incident response, compliance audits, or service disruptions. The inventory must be continuously updated to reflect onboarding, offboarding, and changes in service scope, making it the single source of truth for vendor governance.

3. Categorise Vendors by Risk Impact Across Multiple Dimensions

Once the inventory is in place, the next step is to classify vendors based on the level of risk they bring to the organisation. Rather than applying a blanket risk approach, organisations should use a multi-dimensional framework that assesses each vendor’s impact based on information sensitivity, system access, regulatory relevance, and operational dependency. 

For example, a vendor handling customer financial data and integrated into your ERP system presents a significantly higher risk than a vendor providing office cleaning services. 

Each vendor’s past performance, breach history, and exposure to cyber threats should also be considered. The outcome should be a clear, tiered structure, such as critical, high, medium, or low risk, which determines the depth of due diligence, frequency of assessments, and level of control enforcement required.

4. Define Baseline Security and Compliance Expectations

With vendors categorised by risk level, it’s essential to develop and implement standardised security and compliance benchmarks that scale accordingly. These benchmarks typically cover encryption requirements, secure authentication methods, vulnerability patching timelines, audit logging, breach notification procedures, and mandatory certifications such as SOC 2 Type II or ISO 27001. 

But these aren’t merely best practices; they must be enforceable. Embedding these security expectations into legal and contractual documents like Master Service Agreements (MSAs), Data Processing Agreements (DPAs), and Service-Level Agreements (SLAs) ensures vendors are legally obligated to maintain your organisation’s security and compliance standards. 

Equally important is establishing robust vendor selection standards before onboarding. Organisations must rigorously vet vendors during the RFP and due diligence phases using consistent criteria to evaluate security certifications, data protection policies, and contractual commitments. 

Many vendors may appear compliant internally but lack adequate safeguards for client data, making a thorough selection process critical to minimising downstream risks.

5. Implement Continuous Monitoring and Recordkeeping

One of the most critical yet often overlooked elements of vendor risk management is continuous monitoring. Point-in-time assessments, such as onboarding questionnaires or annual audits, are insufficient, especially where new vulnerabilities emerge frequently.

Regularly sharing these dashboards with CISOs, compliance leaders, and board members empowers informed decision-making and helps justify necessary investments.

At the same time, any unusual vendor behavior or emerging risks should immediately trigger alerts and predefined remediation processes. 

Maintaining thorough documentation of every assessment, audit finding, security incident, and corrective action is equally important. 

These records underpin internal governance efforts and prove invaluable during external audits and regulatory reviews.

6. Establish Cross-Departmental Oversight from the Start

Building an effective vendor risk compliance program is not the responsibility of a single department. From the earliest stages of vendor engagement, collaboration between legal, IT, procurement, and compliance teams is essential. Legal plays a key role in ensuring contracts contain enforceable terms and liability protections. IT is responsible for evaluating the technical security of the vendor’s systems and their integration with internal infrastructure. 

Compliance teams ensure that vendor controls align with applicable regulations and organisational policies. By involving all stakeholders early, organisations can prevent communication breakdowns, avoid duplicated efforts, and ensure that security is not bolted on after a contract is signed but is embedded throughout the vendor lifecycle.

7. Schedule Regular Risk Re-Evaluations and Compliance Reviews

Vendor risk is dynamic. What was once considered low-risk can escalate due to mergers, service expansions, regulatory changes, or security incidents. To maintain an accurate risk posture, organisations must implement periodic, structured reassessments. 

High-risk vendors should undergo comprehensive reviews at least annually, including updated security assessments, validation of certifications, incident response testing, and evaluation of service-level agreement (SLA) performance. 

Lower-risk vendors require less frequent but consistent reviews, ensuring no third party remains unchecked indefinitely.

A disciplined reassessment cadence, paired with robust contractual safeguards, enables organisations to adapt to evolving threats.

Scaling Your Vendor Risk Management Program

For enterprises with expansive third-party ecosystems, scaling vendor risk management requires more than additional tooling it demands strategic alignment of people, processes, and platforms. As the number of vendors grows, so does the need for operational maturity and resource optimisation. Key actions include:

• Assessing internal capability gaps in compliance, cybersecurity, and third-party oversight to inform targeted upskilling or resourcing.
• Engaging managed VRM service providers to augment internal capacity, especially for continuous monitoring and due diligence at scale.
• Implementing automation to streamline risk assessments, evidence collection, and compliance documentation across the vendor lifecycle.

Scalability is not simply about volume; it’s about prioritisation, visibility, and the ability to respond decisively to risk signals. A scalable VRM program is one that grows intelligently, adapting to complexity without compromising governance or response agility. Conclusion

Third-party vendors are integral to business operations; however, they also introduce significant cybersecurity and compliance risks. Addressing common gaps such as a lack of due diligence, vague contracts, and poor offboarding practices is the first step. 

By following a structured vendor risk compliance program, you can establish a resilient and audit-ready framework for managing third-party risks. The result is not just compliance, but long-term trust and protection for your organisation’s data and reputation.

Invensis brings deep expertise in IT compliance, risk mitigation, and cybersecurity support to help businesses build secure, scalable vendor risk programs. From continuous monitoring and data protection to vendor audits and documentation, our solutions are tailored to your industry’s regulatory needs.

FAQs

1. Why is vendor risk compliance important?

Vendor risk compliance ensures that third-party providers follow security and regulatory requirements, reducing the risk of data breaches, operational disruption, and legal penalties.

2. What types of vendors should be included in a risk management program?

All vendors that handle sensitive data, access internal systems, or provide critical services should be included; this includes cloud providers, software vendors, logistics partners, and contractors.

3. How often should vendors be reassessed?

High-risk vendors should be assessed at least once in a year, while medium- and low-risk vendors can be reviewed biannually or during significant changes in their service or your business model.

4. What tools can help automate vendor risk management?

Governance, Risk, and Compliance (GRC) platforms, Security Rating Services (SRS), and Vendor Risk Management (VRM) software can automate assessments, monitoring, alerts, and documentation.

5. What is the role of contracts in vendor risk management?

Contracts define enforceable security expectations, data handling requirements, breach notification timelines, and compliance obligations, making them central to managing legal and operational risks.