Yes invoice has to be in our possession before we can enter it in the system.

This is how a normal sequence looks like.
1- You receive a paper invoice in mail. (the logic would remain the same for electronic invoices). At this point the invoice is not entered in Oracle. You will only enter an invoice in Oracle once you have received one in the mail.
2- You enter the invoice in Oracle.
* If you see a PO number on the paper invoice then you will not enter invoice distribution manually, instead you will create an invoice in Oracle by matching it to a PO. The advantage of creating an invoice by "matching to PO" is that the distribution is created automatically. System will also check if the match is within the tolerance.
* If you dont see a PO number on the paper invoice then you will need to enter the distribution manually (unless you are using distribution sets).