What Is Vendor Risk? A Quick Guide for Denver SMBs

What is vendor risk? To answer this question, we need to know how to define a vendor, or  third party.

A third party is any individual or organization providing goods or services without being on your payroll. This could be an external accountant, a consultant, or even a cleaning crew.

While third-party contractors play a vital role in operations, they also introduce additional security risks that your organization needs to manage — especially for Denver SMBs, where outsourcing is common but cybersecurity awareness may not be top-of-mind.

Vendor risk refers to the potential threats posed by third-party vendors who have access to an organization’s systems, data, or infrastructure. These risks can range from weak cybersecurity protocols to non-compliance with industry regulations. For Denver SMBs, understanding vendor risk is crucial in preventing financial losses, data breaches, and reputational damage. Implementing a robust vendor risk management strategy helps mitigate these risks and ensures business continuity.

Cybercriminals often view third-party vendors as an easy backdoor into larger organizations. Even well-intentioned vendors may unknowingly expose sensitive data due to weak cybersecurity practices. According to a study by the Ponemon Institute, over 50% of data breaches involve a third-party vendor. The risks include:

• Unauthorized Access: Vendors may have access to company systems and sensitive data without strong security measures.

• Data Breaches: A breach at a vendor’s end could expose your company’s proprietary information.

• Compliance Violations: Failing to secure vendor relationships properly could lead to regulatory non-compliance.

• Operational Disruptions: If a key vendor suffers a cyberattack, it could bring your operations to a standstill.

Your company likely has policies in place for working with third-party contractors. These policies exist for a reason: cybercriminals frequently target third parties, knowing they may have weaker security measures than your organization but still have access to critical systems. Conduct regular vendor risk assessments and ensure that all third-party vendors meet your company’s security and compliance requirements.

For Denver SMBs, where partnerships with IT providers, accounting firms, and marketing agencies are common, this is especially critical. Local businesses must ensure their vendors align with cybersecurity best practices to avoid becoming the next headline-making data breach.

Contractors often require access to files, but that doesn’t mean you should grant it without question. Always verify the reason for the request and ensure it aligns with their role. For example, the maintenance team has no business accessing financial records. When in doubt: verify, verify, verify.

A real-world example of poor access control is the infamous Target data breach of 2013. Hackers gained access to Target’s network through a third-party HVAC contractor with weak security credentials. The result? The personal and credit card information of over 40 million customers was stolen. The lesson here: third-party security is your security.

Before working with any third-party vendor, your organization should:

✅ Conduct a security assessment of the vendor’s cybersecurity practices.
✅ Require vendors to follow multi-factor authentication and encryption policies.
✅ Limit vendor access to only what they need (principle of least privilege).
✅ Ensure vendors comply with regulatory standards (GDPR, HIPAA, etc.).
✅ Have an incident response plan that includes third-party risks.

For small and mid-sized businesses in Denver, this checklist is crucial. Many local SMBs rely on vendors for IT support, cloud services, or even outsourced HR — but without proper security oversight, these vendors could unintentionally expose sensitive business data.

Third-party contractors are essential, but they also present security risks. Keep these best practices in mind:

• Review your organization’s policies on third-party access.

• Never grant file access without verifying the requester’s legitimacy.

• Conduct routine security audits on vendors.

• Report any suspicious behavior to your security team.

For Denver SMBs, securing third-party relationships is not just about cybersecurity — it’s about protecting your business, customers, and reputation. By staying proactive, you can ensure third-party collaborations remain productive — without putting your organization at risk.

Contact us today if you’d like to discuss managing third party risk for your business.