One of the first lessons independent consultants learn is how to screen out undesirable clients. Sure, some will match “nightmare client” criteria, but more often they are not “bad people” … they simply bring baggage or requirements with them that you are not willing to accommodate.
Better to find out BEFORE they become clients and turn down the relationship, than after when feelings get (more) hurt and litigation comes into play.
One “nightmare client” warning sign for consultants is the “want a lot for free” client. These are people who want free consulting in exchange for … nothing. Under the guise of wanting to work with you, they slowly and methodically extract what they should be paying for by dangling the carrot of a contract while wielding the stick of walking away.
The solution is to pre-frame expectations about the pre-contract process, then make it clear when discussions have passed beyond pre-contract and into what you get paid for. If the potential client balks after having had the process explained to them up front, 9 times out of 10 they’ll turn out to be poor clients anyway. Cut the string.
This world is value-for-value.
People trying to get around that, well, they suck. 
Anyway, I got to thinking about this because of this excellent article in the WSJ (subscription required) about Best Buy trying to dump their “devil customers.” Well worth a read. (BTW, I think I got this link from another blog, but can’t figure out who or where. Sorry if I slighted anyone.)
UPDATE: Figured out the source. I was tipped off to this article from Dana’s Weblog.
“Best Buy’s angels are customers who boost profits at the consumer-electronics giant by snapping up high-definition televisions, portable electronics, and newly released DVDs without waiting for markdowns or rebates.
The devils are its worst customers. They buy products, apply for rebates, return the purchases, then buy them back at returned-merchandise discounts. They load up on ‘loss leaders,’ severely discounted merchandise designed to boost store traffic, then flip the goods at a profit on eBay. They slap down rock-bottom price quotes from Web sites and demand that Best Buy make good on its lowest-price pledge. ‘They can wreak enormous economic havoc,’ says Mr. Anderson.”
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