Hi @MatthewJames5273,
To allow the Azure AD users to authenticate with Azure AD B2C, you need to add Azure AD as a federated identity provider to your B2C user flow. This will allow users to login from other Azure AD tenants. There is a setup guide for this scenario here: https://learn.microsoft.com/en-us/azure/active-directory-b2c/identity-provider-azure-ad-single-tenant?pivots=b2c-custom-policy
For additional context, someone has asked a similar question on Stack Overflow.
You cannot allow invited accounts to authenticate to B2C user flows or custom policies. (Ref: B2C flows)
As you correctly mentioned, a sign-in flow policy cannot create accounts and that is why you are seeing that error.
Let me know if this helps and if you run into questions with the setup guide.
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