QB Issue Resolution:

Create a Bank Account called Transfer A/R & A/P

Enter the Bill in the Enter Bills Screen

Use the Pay Bills & at the bottom use the New Transfer Account you created. Enter the amount paid.

Customer Center > Receive Payments Screen. Enter what they are deducting > make sure it goes to Undeposited funds

Make a deposit > Deposit the amount into the Transfer A/R & A/P account.

This will zero out the account.

Resolution for Issue 'have a customer that is also a vendor, The customer pays my invoice but deducts the amount for their vendor bill, How should this transaction be entered / accounted for?' available: Yes (Solved).
Source: Intuit Community forum.

have a customer that is also a vendor, The customer pays my invoice but deducts the amount for their vendor bill, How should this transaction be entered / accounted for?: 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.

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