Vendor is also a customer. How to apply vendor po amount as credit to their invoice as a customer

I think you are saying that the customer owes you and you owe them and you would like to offset these amounts?  Ideally this vendor/customer should be credit worthy and if so you should pay your bills to them and they to you.  This way you can prove your revenue via the pymt receipts from them and justify your business expenses via the pymt to them.  I would speak with your tax preparer before going to a method where you are crediting the AR they owe you based on the AP you owe them.  That is my opinion, possibly you'll see other responses where they have correctly, from a tax and bookkeeping perspective, handled this.

Yes the the vendor owes us as a customer and we owe them as a vendor. However the vendor is having cash problems so wants us to credit what we owe them to what they owe us which will still leave them owing us. So how do I do that?