Vendor owes an invoice, we also owe them. They want us to use what we owe them to pay their invoice and then cut a check to them for difference. How can I do that?

We can record a barter transaction for this, donna45.

This type of transaction is used when two parties wants to exchange goods or services without cash payment. In this process, you’d enter an invoice and a bill to record the products or services you’re trading to record the exchange.

First, we'll to set up the barter bank account:

1. Click the Gear ⚙ then select Chart of Accounts.
2. Hit New.
3. Under the Account Type ▼ drop-down, select Bank.
4. Under the Detail Type ▼ drop-down, select Cash on hand.
5. You can enter "Barter Bank Account" for the account name.
6. Hit Save and Close.

Second, we'll have to add your vendor as a customer. Since you can’t have the same name on both lists, we'll have to make the name of this customer slightly different. Please refer to this article to be guided in doing it: Manage your customer list.

Then, let's start the exchanging process by creating an invoice and receiving an invoice payment.

Create an invoice:

1. Click the + New icon.
2. Choose Invoice.
3. Select your vendor’s (barter partner) name from the Customer drop-down.
4. Enter all the necessary information.
5. Select Save.

Receive payment for the invoice:

1. Click the + New icon.
2. Choose Receive Payment.
3. Select your vendor’s (barter partner) name from the Customer drop-down.
4. The details and info from the invoice you’ve created earlier will appear under Outstanding Transactions.
5. Fill in the date and amount.
6. Select the Payment method drop-down, then click Add new.
7. Enter “Barter” in the Name field, then select Save.
8. Select your barter bank account from the Deposit to drop-down.
9. Select Save and close.

For the last step, we'll have to create a bill and bill payment to completely record the exchange. You can refer to this article in doing it: Record a barter transaction.

Once done, you can just simply create a check to your vendor based on the difference of the exchange.

The Community always has your back, so please don't think twice to let me know if I can be of any additional assistance. Have a great rest of the day.