Not able to link Vendor and Customer

I have created a vendor (V) and customer (C) without linking.

Now when I edit the customer to associate vendor to it - when i add the vendor in 'Vendor' field and when saving it is giving error saying Vendor V is not linked to Customer C. This is happening other way round also. When I am creating Vendor and trying to give customer C in 'Customer' field, it is giving error - Customer C is not linked to Vendor V.

What is happening here ? Am I doing anything wrong ? Which one to create first ? How exactly to associate ?