QB Issue Resolution:

Yes, you can turn on the setting to automatically apply credits.  It is in the gear>acct. settings>payments.

Resolution for Issue 'Customer’s pay before service provided, deposit hits acct as AR, when I generate an invoice I don’t want to accept another payment but apply A/R received previously' available: Yes (Solved).
Source: Intuit Community forum.

Customer’s pay before service provided, deposit hits acct as AR, when I generate an invoice I don’t want to accept another payment but apply A/R received previously: this issue or error code is a known issue in Quickbooks Online (QBO) and/or Quickbooks. Support for this issue is available either by self-service or paid support options. Experts are available to resolve your Quickbooks issue to ensure minimal downtime and continue running your business. First try to resolve the issue yourself by looking for a resolution described below. If it is a complex issue or you are unable to solve the issue, you may contact us by clicking here or by using other support options.

Support for before service
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Error Recovery for before service [Canada]
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