SAML SSO Enterprise Application cannot find Local Account user when authenticating

Question

An Enterprise Application has been configured in our Azure AD B2C tenant using SAML SSO.

Using the Sign on URL for the Enterprise Application in an incognito window in Chrome we are only able to login using Microsoft accounts and not Local Accounts.

A Microsoft account user that was invited using the "Invite user" that he can access visualstudio.com with does login successfully.

However, a Local Account user has been confirmed as a Member of the Azure AD B2C tenant and was created using the "Create Azure AD B2C user" option has the error "We couldn't find an account with that username."

One Microsoft representative claims that we need to use Custom Policies for Local Accounts to work while another Microsoft representative claims that this should be possible using User Flows and configuring Custom Policies is unnecessary. To keep things simple we would prefer to use User Flows.

What needs to be configured to allow the Enterprise Application to allow Local Account users to login?