Reducing Payments Made to a Vendor Who Is Also a Customer

There are times when one of your customers is also one of your vendors. This procedure discusses how to "short pay" your Accounts Payable invoice and net that amount against the vendor's Accounts Receivable invoice.

For example, assume that your customer/vendor owed you $1,000 for a project you completed. Because that customer also happens to be a vendor, you owe him/her $1,500 for items purchased. Rather than swapping checks, you decide that you would rather reduce the Accounts Payable check and apply the difference against the vendor/customer's Accounts Receivable account balance.

Part A creates a credit memo to "back charge" the customer/vendor the amount owed on his/her Accounts Receivable account. Part B, in essence, "pays" the invoice using the funds created in Part A.