Customer wants to have write off functionality for credit transactions. This is not available in standard and there is an error thrown to restrict usage of this functionality. Provided workaround was to use Switch off the tax option for the write off and Settle invoices against normal invoice. The product team confirmed that they do not currently have the functionality to do the write off with a credit balance. This is not a bug but a feature limitation so it will not be changed.
For now customer will need to either manually apply the credit transactions to an invoice or debit transaction. They could also use the reimbursement functionality as that will clear the credit balance.