When creating a payment and automatic application is enabled, the payment is being distributed to records with an Inactive billing status even if no unpaid charges exist on that record. You may also see these inactive records listed when creating an advance deposit from a payment.
To prevent inactive records from being included, you can adjust your Business Rules:
1. In Student Billing, select Configuration, Business Rules 2. Select Automatic Application 3. Uncheck the option to include inactive students/individuals/organizations