In this paper we develop a new method for solving the transfer of radiation within a laterally finite optical medium. A new radiative transfer equation, based on a multimode approach, is developed which includes the explicit effects of the sides of the medium. This equation, derived for a box shaped medium, is exactly analogous to the plane parallel radiative transfer equation with a source term. Accordingly, the new equation is solved using the familiar plane-parallel techniques based on invariant imbedding relationships in the form of doubling and adding. The additional terms in the newly derived radiative transfer equation can be interpreted as apparent source and sink terms which arise from the lateral finiteness of the medium. The geometric and physical aspects of these source-sink terms and their influence on the solutions are discussed. Results also show that the multimode solutions compare well with the Monte Carlo simulations.