apply payment to IOU
kind of like applying payment to expense, I think, but as an example with my account:
One housemate owes me $800 for a loan. I owed him $135. If both of these are recorded expenses, it would be convenient to apply the $135 to the $800 (like dragging the IOU into the loan from the dash, or making it an action) so it deducts it from the loan amount, the total he owes me, and the total amount I get back. Instead I deleted the amount I owe him, and went in manually to lower his loan to $665, which then reflected accordingly in the totals. It's really not that big of an issue, I just think it would be a nifty simplification, especially when tracking loans and IOUs (like what amount has been deducted from his loan through IOUs or what he has paid me back in cash), and it would have an effect on the spreadsheet.

There are two possible evolutions to this now, depending on your situation. If everything is in the same group, you can just turn on simplify debts in the group settings page.
If you are not all in the same group, go to your account settings on the website and under advanced features choose simplify debts. Pick both of your friend here and if we determine that it’s ok for us to simplify this, we’ll move the debt over.
Sometimes we can’t do this automatically for privacy or relationship issues that are hard to go into.
Marshall
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Gaurav commented
There should be a way to record a payment from one person to other (e.g. I borrow 10 EUR when I forget my wallet) which is not settling up. I know this can be done via both "Bill entry" and "Settle up" but it takes too many clicks and is not naturally clear. Would be easier to have this as a straightforward easy to access option e.g. "Add a Payment". This would also solve some currency handling issue (at least for me) if I can just add payment in USD from me to my friend and EUR from my fried to me and we both agree that this is the knocking off for different currencies.