It would reduce it to 2 steps to transfer the AR balance to AP with the clearing function, leaving you 2 open items in AP that net to -0-.  Then either at that time or some later time, do an AP manual check entry beginning with "APP" to apply the invoice(s) and credit(s).  It also makes the original entries appear as paid,  instead of adjusted off, and saves the data entry person the concern of entering the adjustments to post to your GL account of choice instead of using the "normal" items.

The AR => AP utility can be used to transfer credit balances for refund from AR to AP as well as apply AR balances against AP invoices.

To apply an AP invoice to an AR invoice;

1) Create a link between the vendor and customer under AP/Setup

2) In AP/Period End, run the AP from AR Clearing Selection and be sure to set the flag on the option "A/R Transfer Amount Cannot Exceed A/P Balance Due".  Also, you can restrict the Customers processed based upon number to further refine your selection.

3) Open AP from AR Clearing Entry to further refine your process.  Using your example, apply $100 of the AR invoice balance to the outstanding AP invoice, thus leaving a balance of $175.

4)  Process the AP from AR Clearing Register and post.

The above can be done either before or after you process and apply the $175 payment from the customer.