Very interesting thread.
First, getting upset/ticked off will do nothing more than make you feel bad, physically. The question that you need to ask yourself, "Do I need the stress. . .along with the other physical ailments that the stress could cause ?"
Second, from a business perspective, letting your customer know what transpired was not the right thing to do. . .isn't the right thing to do. Simply, what you perceive was wrong was right in the mind of your customer. And no matter the venue that you use to communicate your feelings, the chances of you looking like the bad guy would be/could be very high. The question that you need to ask yourself, from a business perspective, "Do I need that ? Can I afford to drive off future customers ?" Remember the old adage, one mad customer has the ability to tell, at least, ten possible customers. And each of those possible customers has the ability to tell ten other possible customers.
Third, as unfortunate as it may be. . .there are times when people just do not have the fundage. This could be self-inflicted (i.e., their lack of good financial management) or them being placed in that position by others. Either way, your position is still the same - - - a finished knife without a buyer. About the only thing you can do. . .try to sell it.
Does canceling an order suck ? Yep.
Was your customer right or wrong ? * shrugs shoulders *
I'll tell you a little story about the canceling knife orders and the lack of fundage. Several years ago, someone owned some rental property. A tenant did something very bad that caused a neighbor to lose their home, their car and seriously injured the old man and old lady that resided in the destroyed home. Tenant split (has yet to be located). The neighbors didn't have any insurance. Guess who was left holding the dog-do bag ? The tenants landlord (the owner of the property). A lawsuit was filed. Insurance covered a great deal of the tab. . .but not all. Let's see. . .there were legal fees and a myriad of other expenses, charges, etc. that the judge imposed on the landlord. The landlords house was awarded to the neighbor. Banking accounts, other investments and properties were frozen and the landlord was given a deadline to produce a very large sum of money. . .to be awarded to the landlords neighbor. The landlord ended up selling numerous "very high end / rare" knives, a large gathering of guns, 2 custom motorcycles, etc., etc., etc. I think you get the drift. To top it off. . .said landlord had to cancel three or four custom knife orders, due to a lack of fundage. Fortunately, the makers fully understood the predicament that the landlord was in.
I'll say it again. "Does canceling an order suck ?" Yep. A lot harder and painful than anyone here will ever know !
Was your customer right or wrong ? * shrugs shoulders *
The best thing to do is "blow it off." It just isn't worth your time, effort or money.