For those who run their own small business, it’s hard these days not to respond to the clarion call for more and better customer service. After all, according to a recent survey by the National Federation of Independent Businesses (NFIB), the biggest concern for small business owners heading into 2011 is declining or stagnating sales.

Customer satisfaction and retention have therefore become a priority.

For this reason, many small business owners have succumbed to the customer service craze, putting tons of money, time and energy into their efforts. Building trust, engaging customers, cultivating loyalty, providing good experience with great customer service skills, and offering value, these are the mantras of today, and countless small business owners have made it their unswerving focus to do it all better and more efficiently than the business down the street (or the flood of websites competing for the same niche).

While these are all vital aspects of running a successful small business, I wonder if we are going too far these days. In the effort to make their customers happy, some businesses seem to be compromising on the very core attributes that make their products or services unique and desirable in the first place. It seems like a no-brainer. You can have the best customer service in the world, but if it is killing your business then it won’t do you much good (and for that matter, it won’t help your existing and potential customers either.)

So where do you, as a small business owner, draw the line when it comes to customer service? Here are three vital areas to consider:

1. Extending credit

Times are tough, and it is possible that some of your best and most loyal customers are now suddenly finding themselves having a hard time paying their bills. When this happens, there is a lot to be gained by trying to negotiate with the customer – whether you agree to an extended payment plan or settle on the debt outright (even for a smaller amount).

But when your customer service skills are not enough such as when communication attempts have been consistently ignored, promised payments are consistently not met, or the person is unusually hostile, then it is time to pull back and seek the assistance of a debt collection agency or lawyer.

2. Product or service “defects.”

Even if you have made quality products and/or service your priority, mistakes can and will happen. Making amends in some way for an unanticipated lack of quality is certainly an appropriate customer service response, and it can help to keep your customer approval high. But at the same time, whatever you choose to do, it should be in line with the actual discomfort experienced by the customer. In other words, watch that you don’t go overboard.

Moreover, keep yourself from chasing after every customer who isn’t happy. Sometimes the product or the service you produced was fine, but the expectations of the customer were too high. In this case, always try to remain courteous, and where appropriate, maybe even offer to “make amends” with some token act, like a small discount on a future purchase.

And a final word here… Make sure that what you are offering to your customers is realistic and doable for your business in the first place and that it corresponds to the amount you are charging.

3. The unruly customer

Sometimes you will encounter a customer who is having a bad day; sometimes your customers may be mean or unreasonable. This can present a challenge to business owners – especially in the days of social media where reputations can be made or broken in an instant. Nevertheless, good customer service does not mean being a willing target for an angry customer’s abusive behavior. Though you should act quickly and do what you can to diffuse the situation, you shouldn’t stick around too long either when the arrows start flying.