Vendor Email Compromise: Defend Your Payables in M365

Know the Threat: How Vendor Email Compromise Evades Typical BEC Defenses

Vendor Email Compromise (VEC) is a form of business email compromise that targets accounts payable rather than executives. Instead of spoofing a CEO or CFO, attackers compromise or convincingly impersonate a real supplier. They reply inside an existing invoice thread and request a change to banking details or push a "rush" payment.

Because the messages often come from a legitimate vendor account or a look-alike domain, basic spoofing checks and generic security awareness training can miss the warning signs. Attackers deliberately blend in by using residential IP addresses, operating during local business hours, and automating responses to look routine.

Microsoft’s threat research documents how these tactics continue to evolve and why BEC-related fraud remains a top financial risk. Their analysis of attacker behavior is outlined in Shifting tactics fuel surge in business email compromise, with broader context available in the Business Email Compromise threat intelligence hub.

VEC works because it exploits trust in established vendor relationships. Defending against it requires more than email filtering. Identity protection, mail flow controls, data safeguards, and finance process verification must work together.

Harden Microsoft 365: Identity, Mail Flow, and Data Controls

Lock down identity to reduce account takeover

Identity is the first control point. Require multifactor authentication for all users, block legacy authentication, and apply Conditional Access so finance apps and administrative portals require strong authentication from compliant devices. Separate admin and user identities and enforce least privilege so compromised credentials cannot be abused broadly.

These controls reduce the likelihood that an attacker can take over an internal mailbox or access finance systems after harvesting credentials.

Tune mail flow and domain protections

Mail flow is the second layer. In Microsoft Defender for Office 365, tune anti-phish, Safe Links, and Safe Attachments policies to focus on impersonation and reply-chain abuse. Disable automatic forwarding to external domains by default, as unauthorized forwarding is a common sign of mailbox compromise.

Strengthen domain hygiene with properly configured SPF, DKIM, and DMARC so vendor impersonation attempts are easier to detect. Add clear external email tagging to help finance users recognize when a message originates outside your tenant.

Use data controls to limit financial exposure

Data controls reduce the blast radius when something slips through. Use Microsoft Purview sensitivity labels to classify financial data such as remittance instructions and bank details. Bind those labels to Data Loss Prevention policies so outbound messages containing payment data trigger warnings, require justification, or are blocked.

For browser access, apply session controls to limit downloads from sensitive apps on unmanaged devices. Maintain a watch list of key supplier domains and alert on look-alike registrations or newly created domains targeting your organization.

Microsoft’s threat intelligence reinforces why layered identity, mail, and data controls matter. See Shifting tactics fuel surge in business email compromise and the Business Email Compromise overview for technical context that resonates with leadership.

Run Operations: Approvals, Detection, and Finance Controls

Enforce out-of-band verification for vendor changes

Operations determine whether controls actually prevent loss. Establish a written vendor change verification policy: any request to modify banking details must be validated through a known, out-of-band phone number. Email alone is never sufficient.

Require dual approvals for vendor record changes and payment releases in your ERP. Hold high-risk or urgent payments for manual review, especially when changes occur close to payment deadlines.

Train and empower accounts payable teams

Train accounts payable staff to recognize urgency, secrecy, and changes to payment instructions as red flags. Make reporting easy with a one-click report-phish button in Outlook. Reinforce the behavior by recognizing and rewarding staff who report suspicious vendor messages.

Run quarterly tabletop exercises that simulate a VEC attempt using a compromised or look-alike supplier domain. Walk through the full workflow, from detection to verification to communication with leadership.

Monitor, respond, and preserve evidence

Monitor finance mailboxes for new forwarding rules, spikes in DMARC failures for key vendors, or increased messages from newly registered domains. Maintain a short incident runbook that covers isolating affected devices, revoking sessions, resetting credentials, and removing malicious inbox rules.

If funds are sent, act immediately. Contact your bank’s fraud team to initiate a recall and file a report with the FBI’s Internet Crime Complaint Center, which coordinates BEC response: IC3 Business Email Compromise public service announcement.

Preserve headers, logs, approval records, and screenshots for insurers and auditors.

Measure what leadership cares about

Track a small set of metrics that tie controls to outcomes:

• Percentage of vendor changes verified out of band

• Time to report suspected VEC messages

• Number of malicious forwarding rules blocked

• DLP actions preventing outbound payment data

Share these metrics quarterly with finance and executive leadership, tying them directly to avoided losses and reduced risk.

FAQ

What is vendor email compromise?

Vendor email compromise is a type of business email compromise where attackers impersonate or take over a real supplier’s email account to redirect payments or change banking details.

Why does vendor email compromise bypass standard email security?

Messages often come from legitimate vendor accounts or convincing look-alike domains. This allows them to evade basic spoofing checks and blend into existing invoice threads.

How does Microsoft 365 help prevent vendor email compromise?

Microsoft 365 provides identity controls, email protection through Defender for Office 365, and data protection through sensitivity labels and DLP. These tools reduce risk when properly configured and combined with strong finance processes.

Is multifactor authentication enough to stop VEC?

No. MFA is critical, but VEC also relies on process failures. Out-of-band verification, dual approvals, and monitoring vendor communications are essential to prevent payment fraud.

What should we do if we suspect a vendor email compromise?

Report the message immediately, isolate affected accounts if needed, verify payment changes out of band, and contact your bank if funds moved. File a report with the FBI’s IC3 to support recovery and investigation.

How often should vendor fraud controls be tested?

At least quarterly. Tabletop exercises and process reviews help ensure staff follow verification steps under pressure.