Hi dfampound!
Yes, you will need to create an invoice for the materials they purchased and a bill for their service. Basically, you'll need to create a customer and a vendor profile so you can create an invoice and a bill. Just put a slight difference in the profile names by adding a middle name or a vendor or customer extension so you can save them. Example: John - Cust and John - Vendor
The roadmap is to offset the balances of the two transactions via journal entry and with the use of a clearing account. It's usually a bank account type that has zero balance and is used to offset balances between A/P and A/R.
Here's an article to guide you through the transactions: Set up a clearing account.
Let me know if you have other questions in mind, Take care!
