I always apologize first, sincerely and graciously. Then I ask the customer how we should proceed. This puts the ball in their court, but it's so open-ended that usually, they will tell me what's going on. Often it's an apology, but sometimes it's something else (even when I on occasion have offended someone without knowing it).
Having said that, there's definitely a line that, if crossed, will result in me firing the prospect. I agree with Martha and others that we should not be doormats.
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